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FIRST PRINCIPLES 



OF 



POLITICAL ECONOMY 



WITH REFERENCE TO 



STATESMANSHIP 



AND THE 



PROGRESS OF CIVILIZATION 



BY PROFESSOR Wi' DSTVILSON 

OF THE CORNELL UNIVERSITY 



-^ 



%'' 



" It has something essential to teach the statesman and tlie mor- 
alist, as well as the producer, the exchanger, and the consumer of 
commodities." — Dr. Elder. 



^OFcd}r;^^ 



%^ 



'^ COPYRIGHT "^ 

FINCH & APGAR y '" xq---^ , 

1875 



>>p 



Entered according to Act of Congress, in the year 1875, 

BY W. D. WILSON, 
In the Office of the Librarian of Congress, at Washington. 



Stereotyped by B, Ih men Smit' , Ithaca, N. Y, 



PREFACE. 

The world is so full of books on all subjects that it is 
expected of any one who adds another to the number 
already existing, that he will offer some apology for the 
new demand he is making upon public attention. And 
the Preface seems to be the place and the occasion where 
he is expected to make it. 

Having been called some fifteen or twenty years ago 
to teach Political Economy — in consequence of there 
being no one else that had leisure to do so — I soon 
began to prepare the way for the use of the text books 
I had chosen, by certain elementary definitions and 
statements, like what are contained in the earlier chap- 
ters of the ensuing pages. Gradually, however, the 
elementary definitions which had thus been commenced, 
grew into nearly all that is contained in this work. The 
manuscript served for several years as the notes from 
which I gave the required Lectures, and is now printed 
for the use of the students who attend the lectures in the 



4 PREFACE. 

ordinary course of University instruction. And it is 
offered V^ the public in hopes that it may do something 
towards advancing a knowledge of those principles of 
the creation and distribution of wealth which confessedly 
lie; at the foundation of our civilization, and are among 
tlie most influential and controlling influences that affect 
human progress. 

If tlie book now offered to the public is found to have 
any merits, it will be, I think, because — 

T. It presents the topics in a better order and arrange- 
ment. 

2. It gives to the primary facts and principles, clearer 
and more precise definitions. 

3. In consequence of the two foregoing peculiarities^ 
it makes certain broader generalizations which are, I 
think, of great scientific interest and practical value. 

I am under great obligations to Professor Z. H. Potter 
for valuable labor in getting the Mss. ready for publica- 
tion and for assistance in carrying it through the press. 

W. D. WILSON. 

Cornell University, Ithaca, N. Y., 
February, 1875. 



CONTENTS. 

I. TITLES OF THE CHAPTERS. 

CHAP. I. INTRODUCTION. 

CHAP. II OF THINGS IN RELATION TO WEALTH. 

CHAP. III. — OF PERSONS IN RELATION TO WEALTH. 

CHAP, IV. OF THE FORCES OF NATURE IN RELATION 

TO WEALTH. 

CHAP. V. OF POPULATION IN RELATION TO WEALTH. 

CHAP. VI. — OF RENT AND WAGES. 

CHAP. VII. OF EXCHANGE. 

CHAP. VIII. OF MONEY AND BANKING. 

CHAP. IX. OF OVER-POPULATION HOPES AND PROSPECTS. 



II. ANALYSIS OF THE CONTENTS. 

CHAPTER I. 

INTRODUCTION. 

Political Economy defined, . . . . 17 

Important to a nation, . . . . .18 

Subdivisions of the subject, .... 19 



COJSTTEJSTTS. 



How far a science of facts, 
Everything considered in a state of change, 
Unsettled in regard to its general principles. 
First reason for this^ . . - 

Second reason, . . . . 

Third reason, .... 

Our position in regard to it,. 
Practical value of Political Economy, 
Subservient to higher civilization. 



20' 
22 
25, 

23 
24 

24 
26 
26 
28. 



CHAPTER IL 



OF THINGS IN RELATION TO WEALTH. 



Of things in relation to wealth. 

The cost of a commodity, 

Utility or intrinsic value, 

Intrinsic value for different purposes. 

Intrinsic value for different persons,- 

Intrinsic value for different uses. 

Measure of intrinsic value, 

Exchangeable value, ... 

The product of labor, 

The average cost of reproduction, . 

Labor increases intrinsic value. 

The kinds of human wants. 

Price, distinguished from value, - 

Price determined by value. 

Supply and demand, as affecting price, 

Three modifications, 

Illustration, 





- 


- 


3E 




- 




- 3^ 








.32 








- 33. 








34 








- 35 








36 








- 17 








38. 








- 39 








4a 








- 41 








42 








- 45 








46 








- 47 


- 






49 



CHAPTER III. 

OF PERSONS IN RELATION TO WEALTH, 
The two elements or factors of wealth. 



5" 



CONTENTS. 7 

Value in relation to sale and consumption, . - 52 

Wealth considered as distributive and aggregate, . 53 
Aggregate wealth important to nations, distributive wealth 

to individuals, . . . . . t^ 

The motives by which men are actuated, . . • SS 

Different kinds of human wants, . . . c6 

All persons considered as laborers, . , . .57 

Producers and consum.ers, ^ . _ . ey 

•Unproductive consumption, . , _ .58 

Producers classified, .--■,. 58 

The function of agriculturists, - , . - 59 

The function of matiufacturers, _ » , 59 

Their relation to intrinsic value, . . . .60 

Limit to the increase of exchangeable valui, - . 61 

Limit to manufactures, . . . , .61 

Their relation to distributive wealth, . . . 6 i 

The function of traders, . . . . - 64 

Their relation to quantity and intrinsic value, . . 65 

The way in which they increase wealth, . . .65 

Limits to tlieir usefulness, .... 68 

Usefulness of the three classes compared, , , - 69 

The function of inventors, . . . 71 

All the population referred to the three classes, - - 72 



CHAPTER IV. 

OF THE FORCES OF NATURE IN RELATION TO 

WEALTH. 

Reduction of prices, ..-■.. 76 

Limit to the decrease, . . . . - 77 

The use of tools and machinery, ... 78 

Their relation to the forces of nature, . . - 79 

The forces of nature defined, .... 79 

The forces of nature gratuitous, . . . .80 



8 



CONTENTS. 



They are inexhaustible, ..... 8l 

Conditions of their use, . . . . .82 

Extent of their usefulness, .... 82 

Man's position in nature, . - - . .84 

Eflfect of machinery on price, .... 85 

Why not uniform in its influence, . . . .85 

Recapitulation and summary, .... 87 

Elements of the labor of production, . . .88 

Land both a tool and a force, .... 89 

Ricardo's theory of rent, . . . . - 91 

Criticisms on the theory, .... 92 
Land never costs more than the average cost of reproduction, 93 

How far Ricardo's theory correct, ... 94 

Effect of a limit to the supply of land, . . - 95 

What makes the price of land, - ... 96 

Land rises in price with cultivation, . . - 97 

New intrinsic values with increased population, . 98 

Increased value of human labor, . . . .100 

Exchangeable value referred to its elements, . . loi 

Taxes and insurance, ..... 102 

Commodities become cheaper, .... 103 



CHAPTER V. 



OF POPULATION IN RELATION TO WEALTH. 



The emergence from savagery to civilization, . . 107 
Tendency of savage life downwards, ... 107 

Civilization or education upwards, ... 108 

Numbers necessary to the use of the forces of nature, . 109 

Origin and use of capital, . . . . no 

Capital represents only labor, . . . .110 

The first effect of an improvement, . . . 1 1 1 

The second effect, . . . . . .112 

The ways in which density of populatio i affects wealth, 1 15 



CONTENTS, 



9 



(I) Division of labor, . . , . -H? 
Saving of capital, . . . . . ii8 
Increase of knowledge of materials, . . .119 
Increased skill and dexterity, - . . 119 
Adaptation of natural abilities, .... 120 
Saving the time of others, .... 120 
Division of labor implies co-operation, . . .121 
Limits to the division of labor, ... 122 

(II) Saving in the cost of exchanges, ... 125 
Saving in labor and travel, . . • . 126 
Saving in the cost of roads, .... 127 
Saving in teams, etc., ..... 128 
The saving by living in villages, .... 129 
(ill) Increased stimulus to production, - . 130 
(iv) Articles come to have new values, . . - 131 
(v) Increase in the proportion of agricultural population, 132 
Modifying considerations, .... 133 
Waste in relation to the increase of wealth, . . 135 
Unproductive capital, ..... 138 
Moral influence of having the producer and the consumer 

near together, ...... 139 



CHAPTER VI. 



OF RENT AND WAGES. 



Wealth the product of three elements, 
English use of rent, wages, and profit, 
Capitalists and laborers, 
Their necessity to each other. 
Rent, wages, and profit, 
The contract between the parties, 
The law of supply and demand, 
The fact of competition. 



142 
142 

145 
146 

147 
148 
149 

150 



lo CONTENTS. 

The effect of these laws on prices, ... 153 

May not act instantaneously, . . - . . 153 

The force of habit on prices, . . - _ 155 

The law of supply and demand will produce a supply, 156 

Will distribute laborers to their various callings, . 156 

Will regulate wages among the different employments, . 157 

Time a factor of wages, . . . . 159 

Time also a factor in rent, . . . .160 

The result reached by another process, - . 161 

Every laborer wants all he can get, . . - .162 

The higher wages of skilled labor, . - - 163 

Exceptions to the law, ..... 165 

Effect of constancy of occupation, - . . 165 

Second law determining the rate of wages, - .166 

Average cost of reproduction will not explain them, . 167 

In what sense wages equal in all departments, . . 168 

This just as well as necessary, .... 168 

Different rates of rent, . . . . .169 

Relation of rent to interest, . . . . 1 70 

Rate of interest decreases with increase of capital, . - 171 

Depends rather on value than amount, . . . 1 73 

Important law of distribution, . . . .174 

Capitalists cannot defeat this law, . . . 1 75 

Equality between rent and wages, . . . .177 

The same result reached in another way, . . 177 

Causes that retard the operation of the law, - . 1 78 

Predominance of labor, . . . . 179 



CHAPTER VII. 

OF EXCHANGE. 

No exchange without division of labor, . . 182 

Exchange between those who use tools, ... 183 

Tools the result of past labor, .... 184 

How determine their value, .... 185 



CONTENTS. II 

Tools reappear in other articles, ... i86 

The basis of exchange, - . . . -187 

Elements of labor represented in any article, . - 188 

Basis of estimate between the buyer and seller, . .189 

The gain by the exchange, . . . . 189 

The money-price of but little account, . . - 191 

In what respects important, . . . . 191 

The benefits of exchange, . . . . .192 

The cost of exchange, ..... 193 
Who bears the cost ? ..... 194 

Cost varies with bulk and weight, . . . 195 
Commercial centres determining prices, ... 196 

How determined at the centres, . . . 198 
Effect of the rising of new centres, ... 200 

Limitation to the law, . . . . . 20 1 

Cost distributed between the producer and the consumer, 202 

The only way of escaping this result, . . . 202 

"What is sold determines the price of all that is produced, 203 

It determines also the price of all other articles, . . 204 

A common mistake with regard to the benefits of trade, 205 

Thrift determines the amount of exchanges, . . 206 

Benefits of proximate exchanges, ... 209 

Articles should be manufactured at a place of production, 211 

Difference in facility for manufacture and production, . 212 

The great wealth of commercial centres, . . 213 

Inferences in favor of free labor and free trade, . .215 

Governments not satisfied with this, .• . . 216 

I. Monopolies, copy and patent rights, . . .217 

II. Usury laws, . . . . . 218 
Arguments in their favor, . . . . .219 

III. Tariff, for revenue, . . - . 221 
Objections to it, . . . . . . 222 

Effect of tariff on importations, ... 223 
What makes a tariff protective, .... 226 

Effect of a tariff that is below protection, . - 226 

Limits within which protection is possible, - . 227 



12 CONTENTS. 

List's doctrine, ..... 229 
Protection and national independence, ... 230 
Diversification of industry, . - - .231 

Free trade reduces the wages of the laborers, - - 231 

The evil effects of low wages on the laborers, . 232 

Beneficial effects of the higher manufactures, . . 236 

Free trade only with free laborers, . . . 238 

Difference between British doctrine and British practice, . 239 

John Stuart Mill advocates protection, . . . 240 

Classes of persons that are not likely to favor protection, 242 

Political motives that may oppose it, . . . 244 

Probability of the continuance of protection in America, 245 



CHAPTER VIII. 

OF MONEY AND BANKING. 

Traders between producers and consumers, . . 247 

Money the means of exchange, .... 247 

Theories of money, ..... 248 

Gold and silver a part of the wealth of a country, . . 249 

What determines their value, .... 249 

Useful for other purposes than coin, .... 250 

Proof of this view, . . . . . 251 

Reasons for using them for coinage, . . . - 25 1 

Signification of coinage, .... 252 

Effects of increase of gold and silver, ... 253 

Labor, not money, the standard of value, . . 253 

Importance of this view, ..... 256 

Market value determines the coin value of silver and gold, 257 

Money and trade, how they enrich, . . . - 257 

Trade enriches individuals, . . . . 258 

Banks, (i) as places of deposit, .... 259 

Banks, (2) as places of exchange, ... 260 
Saving of labor thereby, . . . - .261 



CONTENTS. 



13 



Clearing houses, ..... 261 

Banks, (3) for discount and loans, .... 262 

Banks, (4) for issue of bills, .... 263 

Paper currency saves loss, ..... 264 

Less specie needed, ..... 265 

The process of banking, ..... 265 

The bankers' resources, .... 267 

Loan of the deposits, ..... 268 

The nature of the "loans and discounts," - . 270 
Loans deposited, . . . . . .271 

Necessity for a specie basis, .... 272 

The effect of redemption, ..... 274 

Ratio of specie to loans and discounts, ... 275 

Limit to a bank's "circulation," . . . . 278 

How banks cause fluctuations in prices. . . 278 

Return to specie payments after suspension, . . 279 

Ratio of specie to circulation in this country, . . 280 
The effects of over-issue, . . - . .281 

How money differs from other commodities, . . 282 

What determines the amount of paper, ... 285 

Banking compared with other " business, " . . 286 

How determine the amount of paper needed, . . 287 

How determine the amount of specie, . . . 289 

Governments cannot control the amount, . . . 290 

How gold and silver affect the amount, - . . 292 

\\ hy no more is coined, ..... 293 

Effects of inconvertible paper, . . - . . 294 

A practical test proposed, ..... 295 

How money gets into circulation, ... 296 

Paper not convertible on demand, .... 298 

Premium on gold determined by the ratio of gold to paper, 299 



CHAPTER IX. 

OF OVER-POPULATION — HOPES AND PROSPECTS. 



Wealth the product of quantity into value, 
Man's well being depends on distributve wealth. 



301 
302 



14 CONTENTS, 

Eflfects of increasing and of decreasing wealth, . . 302 

Effects seen in large cities, . - - - 304 

Two theories of population, . . . . 304 

Reasons for Malthus's theory, .... 305 

Reasons for Carey's theory, ... . . . 306 

How far satisfactory, ..... 308 

The rate of increase of production, .... 309 

The rate of increase of population, . . . 310 

Limits to the rate of increase of population, . - 311 

Statistics bearing on this point, . . . . 314 

Difference between civilized and savage society in this respect, 315 

Inference from the foregoing, . . . - 317 

Reference to'the present condition of civilized nations, . 317 

The rate of interest indicates the rate of increase of wealth, 318 

This compared with the rate of increase of population, . 319 

Inference from these facts, .... 320 

A turning point in the law, . . - - . 322 

Signs of approach to it, . . . . . 323 

The effect of reaching it, . . . - . 324 

Changes in social and private habits, ... 325 
Fears of a noblesse of wealth, .... 326 

Reasons why there can be none, . . . - 327 
Unity of executive necessary, .... 329 

Effects of increasing intelligence, . . 330 

Fears of a violent assumption of wealth by the few, . * 331 

The poverty of the many no fault of nature, . . 332 

Economic effects of universal suffrage, . - . 334 

Increasing regard for the principles of right, . - 336 

Improvement in the administration of justice, . . 337 

Approach towards social equality, . . . 340 

No over-population possible, . . - . 341 

Appendix, ..... . 343 



BOOKS OF SPECIAL VALUE FOR REFERENCE. 



As no one book in any science can ever be satisfactory to the 
student who wants to look on all sides of his subject, I subjoin a 
list of those which have seemed to me to be especially worthy 
of reference and consultation, naming those which not only seem 
to be the best, but are also within easy reach of all persons. These 
works I arrange under three different heads, — (i) those of import- 
ance as marking eras or stages in the progress of the science. (2) 
those to be regarded as the fullest and best treatises that represent 
the science as it now is, and (3) a few smaller books of great value 
which are more within the reach of ordinary readers. 

I. BOOKS THAT HAVE MARKED AN ERA IN THE PROGRESS OF 
POLITICAL ECONOMY. 

7. An Enquiry into the Nature and Causes of the Wealth of Na- 
tions. By Adam Smith, LL.D. First published 1776 or 7. 2 
vols. 4to. 
This work is regarded as the foundation and in some sense the 

fountain of the Science. It is seldom read now, however, by 

those who are anxious to get the most and best information in the 

shortest space. 

2. An Essay on the Principles of Population as it affects the Future 

Improve77ient of Society. 

The first edition, London, 1798, I vol. 8vo., was anonymous. In 
1826 appeared the sixth edition, 2 vols. 8vo. with the author's name 
— Thomas R. Malthus. The work is noted for the introduction of 
the famous Malthusian theory of population. 

J". The Principles of Political Economy and Taxation. By David 

Ricardo, Esquire. I vol. 8vo., 1 821, 3d ed. 

This book is famous for the introduction of the very commonly 
received doctrine of Rent known as the Ricardo theory. 

^. The Past, Present, and Future, By Henry C. Carey. I vol. 8vo. 

Philadelphia, 1848. 

This was, and is still, the most elaborate discussion of the sub- 
jects of Population and Rent, in opposition to Malthus and Ricardo, 
that has been published. It goes over the whole ground of History 
and Geography with reference to the questions involved : the culti- 
vation of the soil, which is the first to be cultivated and which the 
first to be abandoned by a retiring population, and the relation of 
the rates of the increase of population and of wealth respectively, 
in the case of both an increasing and of a decreasing density of 
population. 



i6 BOOKS FOR REFERENCE. 

II. BOOKS THAT ARE TO BE REGARDED AS THE MOST FULL AND 
COMPLETE EXHIBITIONS OF THE SCIENCE AS IT NOW EXISTS. 

1. Principles of Social Science, By Henry C. Carey. 3 vols. 8vo. 
Philadelphia, 1858. 

2. Principles of Political Economy, ivith a sketch of the Rise and 
Progress of the Science. By J. R. MacCullock. I vol., 8vo. 
1825. Fourth ed. 1849. 

J. Principles of Political Ecotiomy, with some of their applications 
to Social Philosophy, By John ^Stuart Mill, 1848. 
There have been two American editions, one in Boston and 

another still later by the Appletons, 2 vols. 8vo., New York. 

There is also a cheaper edition, i vol., double columns and fine 

print, by Lee, Shepard & Dillingham, Philadelphia, 1872. 

^. National System of Political Economy. By Frederick List. 
Translated from the German, with Notes and a Preliminary 
Essay, etc. I vol. 8vo. J. B. Lippincott, Philadelphia, 1858. 
Of these works, the first named advocates Protective Tariff; the 
second is opposed to it. Mill is, perhaps, the most complete work, 
on the whole, extant. He writes, however, from an intensely 
British point of view, although he admits that if he were an Amer- 
ican he should probably advocate Protection here. The work of 
List is especially valuable as exhibiting the effects of the two sys- 
tems of policy on the various nations of the civilized world. 

III. SMALLER WORKS OF VARIOUS CHARACTERS THAT ARE WITH- 

IN THE REACH OF ALL. 

/. A7nerican Political Economy, including Strictures on the Man- 
agement of the Currency since j8bi. By Francis Bowen, Pro- 
fessor in Harvard College, i vol. 8vo., pp. 495, 1870. 

2. Elements of Political Economy. By Arthur Latham Perry, 
Professor of History and Political Economy in Williams College. 
8vo., pp. 449, 1866. 

J. The Science of Wealth — a Manual of Political Economy, e7n- 
bracing the Laxvs of Trade, Currency and Finance. By Amasa 
Walker, LL.D. Lecturer on Political Economy in Amherst Col- 
lege, 1867. I vol. 8vo., pp. 496. 

^. A Manual of Political Economy. By E. Peshine Smith, 1853. 
l2mo., pp. 269. 
Of these authors, Bowen and Smith advocate Protection. Perry 

and Walker advocate Free Trac^e. Walker is particularly full on 

the subject of currency. 

I add one work more, which I think of great value. I know of 

none that is more so. 

Questions of the Dav, Economic and Social. By Dr. William El- 
der, 1871. I vol. 8vo., pp. 367. Published by Henry Carey 
Baird, Philadelphia. 



POLITICAL ECONOMY. 



CHAPTER! 

INTRODUCTION. 

Political Economy defined — Important to a nation — Subdivisions of 
tiie subject — How far a science of facts — Everything considered 
in a state of change — Unsettled in regard to its general prin- 
ciples — First reason for this --Second reason — Third reason — 
Our position in regard to it — Practical value of Political Econ- 
omy — Subservient to higher civilization. 

I. Political Economy defined. 

Political Economy is defined to be the '* Science 
of wealth." 

The word wealth, however, is used in two senses. 
In one it is a concrete term and denotes the material 
objects which one is said to own, and which he may 
use for the promotion of his comfort, his welfare, 
or his pleasure. In the other it is abstract and de- 

2 



i8 POLITICAL ECONOMY. 

notes simply well-being. This last was formerly 
the most common use of the word, though the for- 
mer use is now the prevailing one. 

The word ''Economy" itself means primarily 
household law; or the law of the family. And as 
"the ways and means" of life are usually a matter of 
prime concern to every family, the general term 
came naturally to have the limited and specific 
meaning of the law or way of making the supplies 
more abundant in quantity and of using them to the 
best advantage. 

2, Important to a nation. 

And what is thus important to the family becomes 
also a question of engrossing and controlling im- 
portance in the management and administration of 
the affairs of a nation. Most of the peoples who 
have risen to be wealthy and powerful nations have 
begun their career in poverty, and barbarism. In- 
creasing numbers and wants soon force upon them 
the necessity of considering the means of supply. 
And the development of the moral sense will soon 
impose restrictions upon the acquisition and use of 
the "ways and means.!' Most barbarians are ma- 
rauders and pirates. 

Hence in a general sense we say that Political 
Economy is the science which teaches us how to 



INTRODUCTION, 19 

make the best use of the material objects in Nature 
around us for the promotion of our well being. 

J. Subdivisions of the subject. 

It is sometimes divided into four branches, Pro- 
duction, Distribution, Exchange and Consumption. 
These four terms denote the classes of operations 
into which all the acts of men in relation to wealth 
may be divided. But it is not convenient to treat 
them separately, since no one of them can be satis- 
factorily discussed without some knowledge of the 
others. 

But the subdivision and classification is recognized 
and based upon four facts, namely : that before any- 
thing can be an object of wealth, labor must be 
bestowed upon it in production ; and second, that 
this labor rrjust be co-operative ; that is, it must be 
the work of more than one person, each co-operating 
with and helping the other. Hence there must be 
a distribution of what is produced between the sev- 
eral parties who have bestowed labor, or a represent- 
ative of labor called "capital," in its production; 
and third, before it can be used and so minister to 
man's wants there must be an exchange between the 
producers and consumers, of different kinds, that all 
persons in a community may share in the products 
of its industry ; and fourth, in the use of any article 



20 POLITICAL ECONOMY, 

there is a consumption, a using up of what has been 
the subject of labor, distribution and exchange. 

4.. How far a science of facts. 

It has been customary to regard Political Econ- 
omy as peculiarly a science of facts and deduction 
based upon extensive collections of statistics. The 
consequence is that there is an almost endless diver- 
sity of opinions among writers on the subject, and 
so much of diversity and uncertainty is there in 
their teaching that the doctrines of the schools and 
the professed teachers of Political Economy have 
been found of very little value by practical men, and 
a very unsafe guide to statesmen, financiers, and 
business men generally. 

I propose in these Chapters to pursue a different 
method with hopes of better and more satisfactory 
results. 

In fact no law can be proved a posteriori, that is^ 
from a mere gathering and comparing of facts. In 
all such attempts there is an assumption, tacitly 
made and often without the slightest suspicion of the 
fact that any such assumption has been made, upon 
which, nevertheless, the certainty and value of the 
conclusion depends no less than upon the collected 
facts themselves. 

In mathematics it is held to be a certainty that 



INTRODUCTION. 21 

any two points will determine the course or position 
of a straight line. If now we have two or more 
points and assume that they are in one and the same 
straight line, we can from the data thus given easily 
determine the direction and equation of the line. 
But a line to pass through any number of given 
points need not be straight It may have a curva- 
ture almost endlessly varied. And what is more to 
our purpose now, it may in its course between those 
points or beyond them, run any where or in any con- 
ceivable direction, and of course, therefore, to any 
length or distance, or reach any singular point which 
may seem exceptional and beyond all law and all 
possibility. But if, in addition to one or two points 
in the course of the line, w^e know the forces that 
propel any object that is moving along the line, keep 
it in, and determine for it its course, we can deter- 
mine the nature of the line, and the velocity and 
position of the moving body at any given moment. 
All this is as familiar as the a, b, c's, to those who 
are acquainted with analytic mathematics, and the 
calculus. 

Now what points are to the line, and the line to 
these mathematical calculations, facts are to a law, 
and both facts and law are to science. If we know 
the cause or causes of any motion or movement ; 
where they are situated, how and in what direction 
and with what force they act, we can determine the 



22 POLITICAL ECONOMY. 

line along which the moving body will progress, and 
the points it can possibly reach, or in other words/ 
the law of its motion, 

5. Everything considered in a state of change. 

In Political Economy we must consider every 
thing in a state of change ; we take the raw material 
and follow it through all its stages of changing form^ 
increasing value and final return through con- 
sumption to the state of nature^ a mere mass of 
inorganic elements. We consider society also in all 
its stages, from savagism up to the highest civiliza- 
tion, from the sparsest population found among 
savage, or half- civilized, or nomadic tribes, up to the 
densest accumulations of inhabitants in any of our 
most wealthy commercial centres. And we con- 
sider wealth also from its first beginnings in the 
savage state of man, where there are no mechanic 
arts, where there is no exchange, or only the least 
possible amount, up to tlie fortunes that are counted 
by millions, and the commerce that brings to our 
doors every varied product of the earth's abundance 
that can minister to our wants. Hence it is evident 
that we have to deal with what the mathematician 
calls ** variable quantities," and are concerned chiefly 
with the laws of variation — increase and decrease. 
And the truths we shall have occasion to discuss. 



INTRODUCTION. 23 

can for the most part be best stated for all who 
understand such forms, in the forms of mathematical 
equations — and especially differential equations. 

The differential coefificient we can seldom if ever 
find, but its nature we can always determine. And 
we can thus know whether it be a whole number or 
a fraction, positive or negative, such as to imply an 
attainable maximum or minimum, or unattainable 
limits or not. I shall occasionally use these forms 
of statement, explaining my expressions as I go 
along, so as to make them intelligible to those who 
have not studied that branch of mathematics. 

6, Unsettled in regard to its general principles. 

Of all the branches of knowledge that lay claim 
to be considered as sciejtces, there is no one perhaps 
that is less settled in the definitions of its terms, and 
the acceptance of any general first principles, than 
Political Economy. 

y. First reason for this. 

For this, two reasons may be assigned. Perhaps 
there are several more. 

The first that I shall specify, is the one already 
alluded to in speaking of the method that has been 
proposed. It has been regarded as pre-eminently a 



24 POLITICAL ECONOMY. 

science of observations and facts. But the facts are 
so numerous, so complicated, that the opportunity 
for mistake and error, that always exists in a positive 
science, becomes not only a probability, but almost 
an inevitable necessity in this case. 

8. Second reasojt. 

Another cause of the present condition of the 
science arises, as I think, from the disposition to dis- 
cuss, even in the most elementary treatises, the 
questions of statesmanship and social organization^ 
which are rather applications of the science, than 
parts of the science itself In this respect each 
writer has some opinions and theories of his own ; 
some form of government or measure of finance, or 
scheme of social reform that he is anxious to pro- 
mote, and it would be contrary to human nature if 
under such influences, each one were not led — per- 
haps unconsciously — ^to give as definitions, accept as 
axioms, and assume as first principles whatever has 
a tendency to support the object he has in view, the 
form of government he would vindicate, or the finan- 
cial policy he would promote. 

p. Third reason. 

But again : Each writer is a citizen or subject of 
some particular nation. The facts around him are 



INTRODUCTION. 25 

likely to be the first that are seen, and those that are 
the most attentively studied. He is apt to assume 
that they are natural, and the result of nahn^al laws, 
how much soever they may have been the result of 
man's interference with those laws. Thus English 
writers generally seem to assume that Monarchy 
with an hereditary aristocracy, is the best form of 
government, and that a Political Economy, that does 
not vindicate such a form of government, cannot 
have much claim to be considered as a science. 
But if not this, they assume the existence of a 
moneyed class, who own the land, and for the most 
part the "capital" of the nation, whose profits are 
first to be secured and vindicated, and who are at 
liberty to employ laborers, or to spend their money 
in other ways as they please ; they are also generally 
of the opinion that England's manufacturers are one 
great source of her wealth, if not the greatest, and 
hence they are naturally inclined to the policy of 
trade that tends to favor England's monopoly of 
the manufacturing industry and commerce of the 
world. 

All these influences are natural, but they tend to 
bias the judgment and add greatly to the other 
causes that prevent a comprehensive and impartial 
view of the facts, and the laws of nature, on which 
the science should be based. 



26 POLITICAL ECONOMY, 

10. Our position in regard to it. 

In this country the biases and misguiding in- 
fluences may be of another character, and tending 
in a very different direction. But our position pre- 
disposes us to see the mistakes of foreign writers, 
and frees us from many, at least, of the influences 
that have misled them. It has seemed to me, there- 
fore, that I should have the best prospect of success 
if I should withdraw attention from the state of 
facts, actually existing in any nation, and confine 
my attention to the general causes and influences 
that are at work everywhere among men, and to 
consider them as accompanying and modified by the 
advance in population and in civilization, which takes 
place as a people grow up from a few savages oc- 
cupying a large territory, to be a densely compacted 
people, with no more land at home to bring under 
cultivation, and no foreign country, to which by way 
of emigration, they might fly for relief 

//. Practical value of Political Economy. 

Political Economy is eminently a practical science. 
Everybody has studied it to some extent and knows 
something about it. And sometimes it happens 
that those who actually knoiv the least are ready to 
talk and to guess the most. But it is a science 



ITRODUCTION. 



27 



based on primary facts and general laws inferable 
from those facts. 

Doubtless a knowledge of Political Economy is 
useful to the citizen who seeks to advance his own 
pecuniary interest with the greatest certainty and 
rapidity. The statesman finds it indispensable as an 
aid to his efforts in promoting the aggrandizement 
of his country. But ^^ above all nations is humanity,'' 
and the true philanthropist, who labors for the best 
and highest interests of his race, looks to the laws 
that explain the creation of wealth, and should be 
allowed to regulate its distribution and enjoyment, 
for information in regard to the conditions in which 
the higher influences of culture and Christianity 
may have free course to run and be glorified in the 
regeneration of humanity. 

The Institution of Property to which Political 
Economy relates, is the first and most indispensable 
step in any advance from savagery up toward civili- 
zation ; and a constitution of society and an organi- 
zation of the state which allows each one to possess 
and enjoy the fruits of his own labor and his own 
skill is scarcely less necessary to any considerable 
attainment of culture, of civilization, or of social 
and private morality even among the masses. There 
is immense moral power in the thought that each 
one in a community has and is secure in the posses- 
sion of all that he really deserves as the reward and 



28 POLITICAL ECONOMY. 

product of his labors. It gives energy and inde- 
pendence of thought. It gives self-respect and self- 
reliance, without which other virtues can have at 
best only a sickly and unproductive growth. This 
is worth more than the fear of punishment or the 
mere hope of reward — except as it is itself a reward 
— in leading people to observe the rules of action 
and to pursue that course which promotes the truest 
manhood and womanhood in ourselves. 

12. Subservient to a higher civilization. 

The subject is undoubtedly one of the grandest 
that can occupy the human mind, and it is certainly 
one of the most important that can at this time en- 
gage the attention of the citizens of this free 
Republic, or interest the hearts of statesmen and 
philanthropists any where. The gospel is undoubt- 
edly a good thing — a most blessed thing for human- 
ity. It aims to comfort men under the evils of their 
fallen state, and to teach them how to make the 
best of them by converting them into means of in- 
creasing the joys and rewards of eternity. But 
Political Economy — which has been called in de- 
rision *' the gospel of Mammon," — is, more than any 
one science, concerned in removing and extollating 
the very evils which Christianity aims to help us to 
bear with patience and spiritual profit to ourselves. 



INTROD UCTION. 



29 



I may say that individually and personally, I have 
no hope of any great improvement in public or 
private morals anywhere, except as it is to come 
from the hearty acceptance of Christianity as a 
means of teaching and bringing men into an ac- 
knowledged submission to God as the One Supreme 
Being and moral Governor of the universe. But I 
look to science — and to Political Economy more 
than any other one science — to teach men that the 
laws of health and happiness in this world, are a 
part of God's laws also, and that the recognition of, 
and submission and obedience to, these laws in this 
life, is one of the most important means towards the 
promotion of morality and a high spiritual culture 
in the masses of men, and preparing them for the 
life that is to come. If the Bible is a revelation of 
love and mercy, certainly history and science are 
revelations of law as well ; and both must be ac- 
cepted as modifying each other, and as co-working 
means toward our highest practical wisdom. Men 
must learn to submit to law before love can have 
its perfect work, or mercy can have its final triumph 
in this world. Possibly this consideration may have 
led me to speak with more of plainness and warmth, 
in the following pages, of some of the prevailing so- 
cial and economical evils of our day, than the calm 
dignity of a purely scientific treatise would allow. 
But I think it ought to be very emphatically 



30 POLITICAL ECONOMY, 

stated and often repeated, that, in the reaction from 
the past, when the rights of property and capital have 
been undoubtedly too carefully guarded and held in 
too high an estimate, it is scarcely possible that the 
people of our country will not go to the opposite 
extreme — claiming too much for mere labor, and not 
sufficiently regarding the rights of capital and the 
sacredness of the laws by which it is protected. 



CHAPTER 11. 

OF THINGS IN RELATION TO WEALTH. 

Of things in relation to wealth — The cost of a commodity — Utility 
or intrinsic value — Intrinsic value for different purposes — Intrin- 
sic value for different persons — Intrinsic value for different uses 
Measure of intrinsic value — Exchangeable value — The product 
of labor — The average cost of reproduction — Labor increases 
intrinsic value — The kinds of human wants — Price, distinguished 
from value — Price determined by value — Supply and demand, 
as affecting price — Three modifications — Illustration. 

In Speaking of the things which we daily use and 
which are necessary to our happiness and well-being, 
such words as ''utility^' ''valued' ^' price,'' ^^cost," 
etc., constantly appear. And of these terms, cost 
is the most frequently used. 

I J. The cost of a commodity. 

But the word is somewhat vague. We speak of 
a thing as having cost so many dollars, or so much 
money ; of its having cost so much labor or pains ; 



32 POLITICAL ECONOMY. 

so much time or privation, etc. Hence it is mani- 
fest that the word cost is not used to denote the 
equivalent of an object in any one thing or com- 
modity, that may be given in exchange for it. 

It must be manifest however that there will be 
great differences in the laws relating to these differ- 
ent means, as money, time, labor, privation, etc. ; 
any one of which may be given in exchange for an 
article we may want, and yet be considered as what 
it costs. We shall do well therefore to leave the 
word cost to this general use, denoting by it any 
thing, indifferently, that may be done, or given, or 
endured for the sake of obtaining a means of satis- 
fying our wants. 

But for a more correct and scientific investigation 
of the laws of wealth, and Well-being, it will be 
necessary to find more specific and precise terms for 
many or all the elements into which cost, utility, 
value, etc., may be resolved. 

For this purpose we shall find three terms in con- 
stant use, and of the greatest usefulness, namely — 
utility or intrinsic value^ exchangeable or commer- 
cial value ^ and price. 

i/l-. Utility or i^itrinsic value. 

Utility, or intrinsic value, is the capacity to satisfy 
human wants, and may be an intrinsic value for 



THINGS AND WEALTH. 33 

either (i) immediate consumption, or (2) for manu- 
facture. 

Every object in Nature is considered as having an 
intrinsic value for something, or as capable of being 
so used as to minister in some way to man's wants. 
And if there are exceptions to this rule they are of 
no importance to our present purpose. 

Most objects have intrinsic value for more than 
one purpose. Wheat, besides being used as food 
for man, can be used to feed animals, and it has 
been in some cases used as fuel. It would also 
serve as ballast to a ship, and as a weight to hold 
down a trap door, etc., etc. So gold and silver, 
besides being useful for coin, are used for various 
purposes of ornament, as well as for utensils in the 
arts. And were not their intrinsic value too great 
for other purposes, they would be freely used for 
many of the more common purposes, for which 
baser metals are now employed. 

75. Intrinsic value for differejit purposes. 

As an example of different prices of an article, 
arising from different kinds of intrinsic value, that 
is from being estimated by an intrinsic value for dif- 
ferent uses, we have a good illustration in the case 
of land. At a distance of some hundreds of miles 
from a village or city, it is chiefly useful for hunting 

3 



34 POLITICAL ECONOMY, 

grounds and for lumbering ; at a less distance it is 
used for ordinary farming, and bears a price accord- 
ingly. Within a short distance from such a business 
place, it may be wanted for garden purposes, and 
the raising of such vegetables as cannot well be 
brought in from a distance, and for this reason 
(among others) it commands a much higher price 
than the land that, though equally good, intrinsically, 
is situated at a greater distance. Or if the land be 
in the centre of a town, it will be needed for build- 
ing lots, and a few feet will command a higher price 
than as many acres would sell for, back in the 
country. 

In speaking of the intrinsic value of an article, 
therefore, we usually speak of it with reference to 
its value or use for that purpose for which it is 
chiefly in demand; and that will always be, of course, 
the utility that gives it its highest value, or that by 
which it satisfies the most intense want that it is 
ordinarily used to satisfy. 

i6. Intrinsic value for diffej^ent persons. 

But the intrinsic value of any article besides being 
different for different uses, may also be different for 
different persons, under different circumstances. 
Food has more intrinsic value to a hungry man in 
the state of health,, than for a sick man who cannot 



THINGS AND WEALTH. 



35 



eat, and who has no occasion for food. A drug has 
great value for a sick man, but may be worse than 
nothing, a mere nuisance to the healthy. 

ly. Ijttrinsic value for different uses. 

An object is useful in either of two respects, (i) 
for immediate consumption, or (2) for manufacture. 
Bread is useful for consumption as food, flour is good 
or useful for manufacture into bread. 

Manufacture and consumption are both one and 
the same thing; the baker in niamfactm^ing flour 
into bread, consujnes the flour as such, although it 
reappears in another form and with increased value. 
The man that eats the bread consumes it, but in con- 
suming it, he manufactures it into chyle, chyme, 
blood, muscles, and finally, by the use of his muscles 
in labor, into other commodities of intrinsic vali^^^f, 
which become articles of worth. 

The only difference, therefore, between what we 
call mamfacture and consumption is this : when we 
consider the change chiefly in regard to the increase 
of value ^iven to the article bv the change, we call 
it manufacture. But when we consider its use chiefly 
with reference to the giving of enjoyment to the 
consumer or increased value to soniethi7ig else, \nq. 
call it consumption. Thus we speak of consuming 
coal, in the mamifaeturc of iron. If, however, the 



S6 POLITICAL ECONOMY. 

slag and the ashes were the most important products, 
we should reverse the saying and speak of consum- 
ing iron ore in the manufacture of coal into ashes. 

This results from one of the first principles of 
Physical Science, namely, that "man can neither 
create nor destroy a particle of matter." He can 
only change the form of that on which he operates. 
Manufacture is obviously only a change of form, 
and if the axiom cited be true, consumption can be 
nothing more. 

Nor does consumption entirely annihilate the in- 
trinsic value of any thing. It does in most cases, 
however, destroy a large part of that which had 
been given to any commodities by the labor of 
manufacture. Thus leather when made into shoes, 
or lumber made into cabinet ware, are worth but 
little as leather and lumber, whatever may be the 
value of the shoes, tables, etc. 

1 8. Measure of intrinsic value. 

The measure of the intrinsic value of any article is 
the intensity of the want it supplies ; but this intensity 
is not in itself available as a measure for other things. 
We need something that, thermometer-like, will 
measure this intensity ; and this measure is found 
in (i) the labor that one will perform, or (2) the 
privation that he will undergo rather than do with- 
out the article. 



THINGS AND WEALTH. 



37 



This last, the privation one will undergo, is, how- 
ever, of only a theoretical value. No one ever 
measures it But the first named is valuable. Labor 
can be measured. The strength of men is indeed 
different, but it can be measured. Time, also, which 
is an element of labor, can be measured. Hence in 
labor we have a measure of value of the utmost 
practical importance. It is, as we shall see more 
fully below, a product of the two factors, time and 
strength, entering into the various operations of life 
in variable quantities. And although men differ in 
this respect one from another, yet the average 
strength of man is so nearly a uniform quantity 
through all ages and in all countries, that it gives 
us a most important element in measuring values. 

/p. Exchangeable value. 

Exchangeable or Commercial value, or value 
simply so called, is the power which any commodity 
has of obtaining other things by way of exchange. 

Exchangeable value is always the product of 
labor. In the state of nature things have no ex- 
changeable value, only intrinsic value. But the 
moment labor is bestowed on them they acquire an 
exchangeable value which is the product of labor, 
and always bears some relation to it, so that the 
amount of labor determines the amount of value. 



38 POLITICAL ECONOMY. 

Thus water has no exchangeable value at the 
fountain where it gushes forth from the earth. But 
the moment it is dipped up and carried to some 
place where otherwise there would be none, it is, or 
may be, sold at a price proportional to the distance 
and labor of transportation, 

20. The product of labor. 

Exchangeable value arising from labor must be 
measured by labor, and the formula for this value is 
the exchangeable vahce of any commodity is eqnal to 
the average cost of its reprodicction. 

This cost will consist of labor and capital. But 
capital is a product of labor and has its equivalent 
in labor as we shall see below. 

The usual formula, among writers on Political 
Economy, has been that '' value is the cost of pro- 
ductionT But Mr. Carey, I think, first proposed 
*'the cost of reproduction.'' I shall show cause, I 
think, for adding another word to this formula, and 
say, as I have just said, the average cost of repro- 
duction is equal to the exchangeable value of any 
commodity. 

As a general thing articles will sell for what it 
costs to produce them. But suppose that at a cer- 
tain stage in the production of articles of any class, 
a new process is discovered by which articles of the 



THINGS AND WEALTH. 39 

same kind and intrinsic value may be produced with 
half the labor before required to produce them, the 
price of articles of that class will fall in market ac- 
cordingly, and the old articles will no longer sell for 
the old price. Hence the cost of reproduction, and 
not the cost of production, must be taken as the 
measure of value. 

21. The average cost of reproduction. 

But we need a further modification. The cost of 
reproduction will vary with time and circumstances. 
A man who has recently discovered a placer of gold, 
may be able to reproduce ounce after ounce of the 
precious metal for days, with only the labor of 
picking it up and taking care of it. The manu- 
facturer who has had the good fortune to buy a 
large stock at very advantageous rates, so that he 
can replace what he is selling at less cost than his 
neighbors and competitors can do, will not sacrifice 
his chance to make a larger profit than they do, in 
order to sell at what it will cost him to replace his 
wares. Not, therefore, the cost of reproduction 
merely, but the average cost of reproduction is the 
measure of exchangeable value. 

Still, however, for most purposes of ordinary dis- 
cussion, the shorter and more elementary form, 
"The cost of production," will answer just as well 



40 POLITICAL ECONOMY, 

as the more elaborate and precise one. And yet we 
must be on our guard constantly, lest the error that 
is implied in it mislead us when we least expect it to 
do so. 

Hence God gives to articles their intrinsic value, 
but man gives to them their exchangeable value. 

22. Labor increases intrinsic value. 

But the labor of man increases also the intrinsic 
value ; thus it converts the chemical elements of 
oxygen, carbon, etc., into wheat,— wheat into flour, 
flour into bread, etc., and at each stage these ele- 
ments acquire an additional capacity to supply 
human wants, and promote man's wealth and 
welfare. 

The exchangeable value of an article can never 
rise above its intrinsic value. For since it is labor ' 
alone that produces exchangeable value, no one will 
continue to labor upon anything after his labor has 
ceased to increase its intrinsic value, or to make it 
better and more useful. Hence although exchange- 
able value and intrinsic value have no common 
measure, and cannot be expressed in terms of one 
another, we have an inexorable limit to exchange- 
able value ; for labor cannot raise it above the in- 
trinsic value of the article on which that labor is 
bestowed. 



THINGS AND WEALTH. 41 

2j. The kinds of human wants. 

I have spoken of labor as increasing the intrinsic 
value of articles while it creates their exchangeable 
value; and intrinsic value I have spoken of as a 
capacity to satisfy human wants. But in all this I 
have taken no notice of the difference in the kind 
of wants that may be satisfied. These wants, how- 
ever, are as various in their character, as the con- 
stitution, the characters, the tastes, and even the 
wishes and caprices of men. It is not at all the 
nature or the character of the want, that the Po- 
litical Economist has to take note of, or deal with. 
He is concerned only with its intensity, the afnount 
of labor or of privation and self-denial it will oc- 
casion. It is otherwise with the statesman. The 
Political Economist looks only at the effects; the 
statesman must regard their moral characteristics ; 
and to him, virtue, integrity, patriotism, manhood, 
and true womanhood are infinitely more important 
than gold and silver, or all the other effects of a 
financial policy. 

I think that all preceding writers have made a 
mistake in this respect ; and notably so the English, 
who seem to regard the want of food, and clothing, 
and possibly sometimes the want of the means of en- 
joyment of rather a low kind, as the only wants to be 
taken into account. But the wants of man — those 



42 POLITICAL ECONOMY. 

I mean which are the active, motive forces, may be 
referred to three classes, (i) spiritual and intellectual, 
(2) material and physical, such as food and clothing, 
and (3) aesthetic, such as lead to the creation and 
purchase of articles of ornament and beauty. Of 
the first we need say nothing now, although they 
are among the most powerful, and in certain emer- 
gencies of Hfe and of history, they — especially 
religious enthusiasm or fanaticism, — rise above all 
others, and replace them as motives to action. The 
second, or material wants are the ones usually in 
the minds of writers on Political Economy, when 
they write or speak on their favorite topics. But a 
moment's thought will satisfy us that the aesthetic 
wants of man are as powerful, and enter perhaps 
even more largely into the motives that impel to 
labor and self-denial, than the material. I think 
that more is done and endured the world Over, to. 
procure ornament, and the ornamentation of what 
is sought chiefly for its utility, than for mere utility 
alone, without thought of ornament, beauty, or the 
"looks of a thing." Most men would as wilHngly 
have no coat, as to wear one that is not becoming to 
them. 

2/1-. Price distinguisJicd from value. 
Price, is the exchangeable value, as modified in 



THINGS AND WEALTH. 43 

particular times and places by the relation of supply 
and demand. 

Exchangeable value is created by labor. Price is 
usually indicated and measured by reference to some 
accepted standard, as gold, and silver coin, etc., or 
the currency of the nation. 

This distinction between price and value has not 
always been made. Nay, in some cases it seems to 
have been avoided, if not even studiously ignored. 
Thus John Stuart Mill, represents value as depend- 
ent on supply and demand in all those articles whose 
supply is notably Hmited, and he would apparently 
reverse the rule in regard to those commodities that 
can be easily produced, and to whose production 
there is no necessary or natural limit. He says, *'It 
is, therefore, strictly correct to say that the value of 
things which can be increased in quantity at pleas- 
ure, does not depend on supply and demand, on the 
contrary, demand and supply depend on it." B. 
Ill, Ch. Ill, § 2. 

In another place he says, "If for instance the 
general efficiency of all labor were increased so that 
all things without exception could be produced in 
the same quantity as before with a smaller amount 
of labor, no trace of this general diminution of the 
cost of production would show itself in the values 
of the commodities." B. Ill, Ch. IV, § 3. 

This may be true of Price as he has used the 



44 POLITICAL ECONOMY. 

word. But the general diminution of the cost of 
production would show itself in something. And 
what shall we call that something ? It is an item of 
most inestimable value in Political Economy. And 
yet Mr. Mill has no name for it. Something must 
decrease with the diminution of the cost of produc- 
tion, and that something, it is, that is always decreas- 
ing with every invention and discovery ; every 
change or improvement, that either renders less 
labor sufficient to produce a given amount of value, 
or the same labor able to produce more value or 
wealth ; so that with this advance there may be an 
increasing distribution of wealth, and a correspond- 
ingly better condition of the laborers, if there be no 
unjust interference with the distribution. 

In the examples cited, as indeed everywhere else 
in his treatise, the only difference he makes in the 
use of the words, ''price," and ''value," are, that 
while the former denotes the purchasing power of 
any commodity in money, the latter denotes it in 
other commodities as indicated by simple barter. 

In certain states of society it is easy to see why 
persons having certain forms of social and political 
organization to sustain, should be unwilling to repre- 
sent value as the creation of labor, or as bearing any 
constant or necessary relation to its amount. The 
bare statement of such a doctrine would be too 
likely to suggest the thought that if this be so, "the 



THINGS AND WEALTH. 45 

laborer is worthy of his hire," and ought not to be 
kept in poverty and privation, while they who do 
but little or nothing are abundantly supplied with 
the means of gratifying their wants, to be at all a 
favorite with those who seem to think that men were 
created to produce wealth, and gentlemen to enjoy 
it 

2^. Price determined by value. 

It is a fact of daily observation, that where any 
commodity is abundant and but few comparatively 
seeking for it, it is cheap. But in the inverse state 
of things, when an article is scarce, and many per- 
sons are in want of it, it is dear. And thus with no 
change in either the intrinsic or the exchangeable 
value of an article, its price may vary to almost any 
fraction or any multiple of its ordinary amount. 
And thus fluctuations affect what is called the 
''price'' of articles. 

But besides these changes there is a something 
that tends gradually and steadily downwards with 
every advance in machinery or skill, every increase 
in the division of labor or saving in the cost of ex- 
changes; and this we call ''vahce.'' And it is no 
uncommon thing to hear people say of a thing in 
times of high prices, "it is worth so much." But 
worth is value, and not price. But again we say, 



46 POLITICAL ECONOMY. 

**it ought not to cost so much," which means that its 
price is above its value. 

26. Supply and demand, as affecting price. 

It is manifest that the same result may be obtained 
in either of two ways, (i) an increase of the supply, 
while the demand remains the same, or (2) increase 
of the demand, while the supply remains the same. 
Hence this relation is usually called the ratio of 
supply and demand. And for many purposes it 
may be regarded as a ratio, in the strict mathemat- 
ical sense. But for other purposes, though a relation, 
it is not a ratio. The formula is as follows : 
P= V+ (d- s) 

This will satisfy all cases. If the demand be 
greater than the supply, the price will be greater 
than the exchangeable value, and may rise to the 
intrinsic value, and then its sale will stop ; the price 
can go no higher. If the supply be greater than 
the demand, the price will fall and there is no limit 
to its decline. 

When the excess of supply over demand becomes 
so great that pidce becomes negative, the com- 
modity is regarded as a nuisance, a dead elephant, 
and we are obliged to pay something for getting rid 
of it. And so on the other hand, if the demand be 
anything, and the article a necessity of life, as food, 



THINGS AND WEALTH. 47 

the air we breathe, or the water we need to slake 
our thirst, the price which the article will command 
becomes practically infinite ; one will give all he has, 
and do all he can to get it 

Hence the relation of supply and demand cannot 
be a ratio, in the mathematical sense — for the value 
of a ratio can never be negative or a minus quantity 
so long as both terms are positive. Consequently, 
if the relation were ratio, the price would always be 
somewhat above the exchangeable value, however 
great the supply, and however small the demand. 

2^. Three modifications. 

There are three very important considerations by 
which the relation of supply and demand are af- 
fected. 

(i) The length of time that must elapse before 
another supply of any commodity can be produced. 
Thus a wheat crop, depending upon the seasons of 
the year, can be reproduced only at the end of 
another season. If, therefore, the crop should 
happen to be short at one harvest, the price will rise 
much more in consequence, than it would if another 
could be produced within the next three months. 
This of course implies that there is labor and capital 
enough to produce the commodity in the shorter 
time, which however is usually the case. 



48 POLITICAL ECONOMY. 

(2) The length of time during which any com- 
modity can be kept without decay. The gardener 
or green- grocer, who has fresh vegetables on hand, 
must sell them soon or they will become worthless 
by the process of decay. If, however, they could 
be kept indefinitely, he could hold them, until either 
the demand should become greater, or the supply 
less, and thus protect himself against the loss that 
would otherwise be inevitable. Hence, as a general 
rule, the longer an article can be kept, without 
diminution of intrinsic value, the less liable to 
fluctuations in price. 

(3) The third consideration is this : If the ar- 
ticle which is short in supply be one that is re- 
garded as a necessity of life, the rise in price will be 
greater in consequence of the shortness, than if the 
article were one that could be more easily dispensed 
with. 

Thus, suppose the crop of wheat is short ; people 
are alarmed, and each one becomes anxious to pro- 
vide for himself Speculators are anxious to buy, 
in view of the rise in prices, and the demand be- 
comes greater than it would have been in view of 
the mere fact of a deficiency in the crop, to that 
amount. But if the article be one that people can 
do without, many will conclude to do so, rather than 
pay the higher price, and thus will be in no hurry 
to buy. And this disinclination to buy — this 



THINGS AND WEALTH. 49 

knowledge of the fact that they can do without the 
article, will check the upward tendency of the price 
of the commodity. 

28. Ilhistration. 

To illustrate these relations, suppose that some 
one should establish a caravansera in the desert, and 
undertake to supply the travelers with water ; the 
article has great intrinsic value, but ordinarily no 
exchangeable value. At his caravansera in the 
desert, however, it would have cost him in the labor 
of transportation, quite a sum. It would therefore 
have for him and his customers exchangeable value, 
and a price. 

Suppose now a railroad, or other facihty for trans- 
portation be built, by which the labor of getting a 
supply would be lessened ; the exchangeable value 
would be diminished accordingly, and so would the 
price. 

Doubtless he would be obliged to charge some- 
thing for the use of the railroad ; but that fact 
would not interfere with our calculation ; for we 
shall see bye-and-bye that capital itself can be re- 
solved into labor, and that in paying for the use of 
it we are but paying for past labor. So that what 
we pay for, in any case, is only labor — labor per- 
formed either in the past or at the present. 
4 



50 POLITICAL ECONOMY. 

But suppose again, that the water is a commodity 
that will not keep without speedy decay — and sup- 
pose, also, that no new supply can be obtained in 
answer to an order, in less than a week or ten days. 
Now, if during such an interval, the customers 
should be fewer than usual, so that the demand 
should decrease, the price would fall, and he would 
sell at almost any price, rather than suffer a total 
loss. 

Or, if the number of travelers wanting water 
should increase, he would raise his price, demand all 
he could get, and the price might rise up to its 
maximum — the intrinsic value of the article, totally 
independent of any change in the exchangeable 
value, or average cost of reproduction. 



CHAPTER III. 

OF PERSONS IN RELATION TO WEALTH. 

The two elements or factors of wealth — Value in relation to sale 
and consumption — Wealth considered as distributive and aggre- 
gate — Aggregate wealth important to nations, distributive 
wealth to individuals — The motives by which men are actuated 
— Different kinds of human wants — All persons considered as 
laborers — Producers and consumers — Unproductive consump- 
tion — Producers classified — The function of agriculturists — The 
function of manufacturers — Their relation to intrinsic value — 
Limit to the increase of exchangeable value — Limit to manu- 
factures — Their relation to distributive wealth — The function of 
traders — Their relation to quantity and intrinsic value — The way 
in which they increase wealth — Limits to their usefulness — Use- 
fulness of the three classes compared — The function of in- 
ventors — All the population referred to the three classes. 

2g. The two elements or factors of wealth. 

Wealth must be considered as the product of two 
factors, quantity and value, thus 

If we know that a man owns fifty acres of land, 



52 POLITICAL ECONOMY. 

we know the quantity of his possessions, but we can 
infer nothing whatever from this as to the amount 
of his wealth. Or if we know that land is worth 
one hundred dollars per acre, we have indeed an 
expression of its value ; but we do not know what 
is his wealth until we know how much he has of 
such land ; with both factors we can compute his 
wealth — 50 X 100 = 5000, or five thousand dollars. 

JO. Value in relation to sale and consumption. 

In this formula we must for the most part under- 
stand exchangeable value. But there are cases where 
the intrinsic value is the only one that will fulfill the 
conditions of the formula. If for example, a man 
were alone on an island with only a limited supply 
of any article necessary to life, the exchangeable 
value of that article would be of no consequence to 
him since he is out of the reach of exchange ; and 
intrinsic value, the capacity to satisfy his wants, 
would be the only factor that would enter into the 
account to modify our estimate of his wealth. If 
he had only one hundred bushels of wheat or their 
equivalent in bread, and the intrinsic value of nine 
bushels is equal to one year of life, we have in this 
fact a means of measuring his wealth. 

And in fact it is one of the fundamental principles 
of Political Economy, that the intrinsic value of that 



PERSONS AND WEALTH. 



53 



portion of the products of one's labor which he con- 
sumes, is the only value that enters into the account 
of his wealth, while in regard to that portion which 
he sells, the exchangeable value is the only one 
that is of importance to him. 

One hundred bushels of wheat will go as far 
towards supporting the farmer's family when it is 
selling at one price, as if it were selling at any other. 
But for purposes of sale and exchange, seventy-five 
bushels at one dollar per bushel, are as good as one 
hundred bushels at seventy-five cents per bushel. 

This is a fact that should never be lost sight of, 
and will come up for application a good many times 
in our subsequent discussions. 

J I. Wealth considered as distributive and ag- 
gregate. 

Wealth may be considered as either aggregate or 
distributive. By the ''aggregate wealth" we mean 
the entire wealth of community, irrespective of its 
distribution among the people, and even of the 
number of people altogether. 

By ''distributive wealth" we mean the product 
of the wealth estimated in dollars, or something of 
the kind, divided by the number of population. 

Thus the aggregate wealth of the State of New 
York, was, in 1850, $1,765,944,246. Divide this 



54 POLITICAL ECONOMY, 

by the number of population at that time, and we 
have $460. 86, as the distributive wealth : that is, 
$460.86 is the sum which every person would have 
had, if the wealth had been equally distributed 
among all the people in the State. 

j2. Aggregate wealth important to nations, 
distributive wealth to individuals. 

Now it is manifest that any means which can in- 
crease the aggregate wealth while the population 
remains the same, or which will increase the aggre- 
gate wealth faster than the population increases in 
numbers, will augment the distributive wealth. 
And as the distributive wealth indicates the average 
amount of the means of satisfying the wants of the 
people, the greater the distributive wealth, the better 
the condition of the people, when regarded solely 
from an economical point of view. And no in- 
crease of aggregate wealth that is not greater than 
the increase of the population, so as to increase the 
distributive wealth or the ratio between wealth and 
population, can improve the condition of the people. 

Thus, suppose each man's distributed wealth to be 
$500, it can make no difference whether he lives in 
a nation of 30,000,000 inhabitants, with $15,000,- 
000,000, aggregate wealth, or one of 5,000,000 in- 
habitants, with $2,500,000,000, aggregate wealth — 



PERSONS AND WEALTH. 55 

his means of supplying his wants are the same, 
other things being equal, in each case. 

Any increment of distributive wealth for any 
period, must always be the excess of production 
over consumption during that period. 

When, therefore, production is in excess of con- 
sumption, we have an increasing distributive wealth. 
But when consumption is in excess of production, 
we shall have a decreasing distributive wealth — or 
in other words, the people are growing poorer. 
And, as we shall see more fully bye-and-bye, we 
have in this, one of the most demoralizing influences 
that can be at work upon any people in the present 
state of the world's history, 

jj. The motives by which men are actuated. 

In Political Economy all persons are assumed to 
be actuated by self-interest, or possibly, pure selfish- 
ness. We do not assert or deny that this is right, 
nor pause to inquire how far it is morally right or 
wrong. We assume it as a fact too universal to ad- 
mit of any exceptions, that will materially vitiate 
the conclusions that may be drawn from it, when 
taken as universal. 

We assume, too, that man is averse to labor and 
privation, and that he will perform the one, or un- 
dergo the other, only as he has a motive to do so, 



56 POLITICAL ECONOMY. 

arising from the want of something, that can be 
procured only by means of labor or privation He 
will work and practice self-denial, only as a means 
to the gratification of some want of his own. 

j^. Different kinds of human wants. 

Nor do we inquire into the moral character of 
the wants that impel men to labor and self-denial — - 
those are questions for the moralists. The fact of 
such wants — their existence as motives and stimu- 
lants to exertion, is all that the mere student of 
Political Economy has occasion to consider. In 
reference to the laws of production, distribution, ex- 
change, and consumption, it makes no difference 
what these wants are, whether it is the want of food 
to eat, clothing to wear — a house and home for 
shelter and social enjoyment — books and lectures 
for mental culture — works of art and articles of 
vertu, for aesthetic enjoyment — jewelry for ornament 
to the person — an office to gratify one's ambition — 
a church and religious privileges for morahty and 
the salvation of his soul — a title to satisfy his vanity 
— or even the means of vicious indulgence and de- 
bauchery — for they are all wants, and as such, will 
impel men to exertion, and the kind of exertion that 
creates value. 



PERSONS AND WEALTH. 57 

J5. All persons considered as laborers. 

We also assume that all persons need to work in 
order to get a supply. Some there are, of course — 
the rich, as they are called — who do not need to 
make these exertions. But they are so few in any 
community, in proportion to the whole, that we need 
not take them into account for the discussion of the 
general principles of Political Economy. 

j6. Producers and consumers. 

Human beings are considered as either consumers 
or producers. 

All are consumers. We eat food — we wear out 
clothes ; and food and clothing are the products of 
labor. And even in sickness we consume the time 
of others in taking care of us. 

Consumption is of two kinds — productive and 
unproductive. 

The mechanic that makes wool into cloth — cloth 
into clothes, etc., consumes the commodities that he 
works up. This, however, is called productive con- 
sumption, because the commodity appears the same 
in substance, though changed in form ; and as a 
general rule with an increase of intrinsic value. 
This at least is always intended. Hence all manufac- 
ture is productive consumption. 



58 POLITICAL ECONOMY, 

jy. Unproductive consumption. 

A case of unproductive consumption, would be 
that in which a man eats food, wears clothing, etc., 
and does nothing — or at least does nothing that in 
any way increases the value of any commodity or 
in any way increases the wealth of mankind. 

J 8, Producers classified. 

Producers are of three kinds, (i) agriculturists, 
(2) manufacturers, and (3) traders. 

By agriculturists y we mean all those who produce 
what is called the "raw material." And we call 
them agriculturists because the material is produced 
from the earth, and that in one of the three ways, 
(i) by animal or vegetable growth, or (2) by mining, 
and (3) by fishing and hunting, and possibly we 
ought to say lumbering. 

In the two latter cases the material already exists 
in a form more or less gross, and needing to be 
brought into market. In the former case it exists 
only in the form of chemical elements, minerals in 
the earth and air, and must be collected and com- 
bined by the processes of growth and organic com- 
bination. 



PERSONS AND WEALTH. 59 

jg. The function of agriculturists. 

The labor of the agriculturist, as such, ceases just 
as s6on as the commodity is collected from the soil 
and fitted to become an article of trade, to be sold 
and carried off for consumption or manufacture. 
And if the producer of the "raw material" carries 
his commodities to market, he is to that extent act- 
ing the part of the trader. 

Now it is manifest from this definition, that this 
class of producers determine the Quantum, or the 
first factor, of wealth. For since whoever produces 
the raw material is an agriculturist, as we have 
defined the term, nothing can become an article of 
wealth, or pass into the hands of manufacturers with- 
out first passing through their hands and receiving 
from them a portion of labor. 

^o. The function of Manufacturers. 

The second class of producers to be considered 
are the manufacturers. 

The manufacturers are those who take the "raw 
material" where the agriculturists leave it, and carry 
it through the successive transformations it may re- 
quire, until it is ready for final, or ultimate consump- 
tion. Thus, the miller manufactures flour out of 
wheat, the baker manufactures bread out of the 



6o POLITICAL ECONOMY. 

flour, and the bread is ready for final or ultimate 
consumption. 

In the same way we can trace every article 
through one or more transformations until it is fit 
for use. 

Now at every stage, the manufacturer adds to the 
intrinsic value of the article, otherwise, it would be 
no better for his labor, no body would pay him for 
the labor he may have bestowed upon it, and he 
would not perform that labor. 

/j-i. Their relation to excha7igeable value. 

The manufacturer adds to the exchangeable value 
also, for a hundred bushels of wheat made into flour, 
sells for more than the wheat itself Lumber made 
into cabinet ware, is worth more than the mere lum- 
ber. Leather made into boots and shoes is worth 
more than the stock of which they are made. 

This will be understood, of course, as the general 
rule. But it will often happen that one will expend 
labor on what is made no better by his labor, but 
rather worse thereby, and in some cases entirely 
"spoilt," as the expression is. But this, however, 
can only occur in exceptional cases, and even then 
the person who bestows the labor does it for the 
most part, if not always, with the expectation and 
belief that the material he works upon will be made 



PERSONS AND WEALTH. 6i 

into something that will at least be worth the labor, 
in addition to the value of the material before the 
labor was undertaken. 

^, Limit to the increase of exchangeable value. 

Hence putting this law of the increase of the two 
kinds of value into the form of a differential equa- 
tion, and using Q to denote any fraction whose value 
is less than unity, and denoting intrinsic value by 
Fi, and exchangeable value by f^, we have, 

that is, the increase of the exchangeable value of 
any article, by any given amount of labor, multiplied 
by some fraction less than unity, is always equal to 
the increase of the intrinsic value. Hence the 
smaller the value of 0, the more beneficial the man- 
ufacture. And when 9 becomes unity, manufacture 
has reached its limit. 

• 

4.J. Limit to manufactures. 

But the increment of the exchangeable value can 
never exceed the increment of the intrinsic value. 
For then the labor would be entirely lost and with- 
out reward. We say of such cases, "it costs more 
than it is worth," the improvement is not worth the 
labor or trouble it costs to make it. 



62 POLITICAL ECONOMY. 

Here then we have a Hmit to manufacture as 
a means of wealth. Manufacturers, therefore, create 
and determine the second factor to wealth, namely, 
the value or quaikfty of the commodities. 

Hence we have two principles, (i) Up to a 
limit already pointed out, that is, so long as labor 
spent in manufacturing can increase the intrinsic 
value more than it increases the exchangeable value, 
the more perfect the manufacture, the greater the 
wealth of the community. 

(2) The smaller the number of persons engaged, 
provided they are sufficient to do all that may be 
necessary in any community, the better for that 
community. For, like agriculturists, they add to 
the number between whom the quantity determined 
by the agriculturists must be divided, and of course, 
therefore, the more there are of them, the less for 
the several persons — the less the distributive wealth 
of the community. 

/^. Their relation to distributive wealth. 

Hence the wisdom of reducing the number of 
persons engaged in manufacture as far as possible, 
provided only that we do not thereby prevent the 
manufactured articles from being carried to the 
maximum of intrinsic value. 

For since the manufacturers add nothing to the 



PERSONS AND WEALTH. 63 

quantity, they must take a certain portion of that 
which has been produced by the agriculturists as 
compensation for their labor, and as a means of 
support to themselves, and thus, while adding to the 
aggregate, they diminish the distributive wealth of 
community. 

The case of millers in some communities is an il- 
lustration ; the farmer carries his wheat to mill ; the 
miller — a manufacturer — grinds it, and takes for his 
pay one-tenth of the grist Consequently the farmer 
has but nine-tenths left. If, now, one miller can 
grind the wheat for, say, nineteen farmers, he will 
receive but one-tenth of all the wheat that is raised, 
and the farmers have each his share of the remain- 
ing nine-tenths. But if it should take two millers 
instead of one, each taking as much when there are 
two of them, as either would have taken when there 
was but one, they would take two-tenths, or one- 
fifth of the whole, and each of the others have left 
only his share of eight-tenths, instead of the same 
share of nine-tenths as before. 

The case would be the same in principle, if the 
farmer should pay the manufacturer in money. 
For suppose wheat to be the only thing he has, and 
thus to constitute his entire wealth, he would be 
obliged to sell a part of it to get the money with 
which to pay the miller, and thus he might as well 
give the wheat immediately and directly to the 



64 POLITICAL ECONOMY, 

miller, as to make the other exchange first. Or we 
may generalize the statement, and supposing the 
agriculturist to be possessed of any number of com- 
modities, he must either give part of them directly 
to the manufacturer — to each manufacturer through 
whose hands his commodities pass — or sell the same 
part to get the money with which to pay the man- 
ufacturer for his labor. 

Hence, manufacturers, how many or how few 
soever they may be, are added to the number of 
the persons in any community, among whom the 
quantity produced in any community must be dis- 
tributed — and hence, other things being equal, the 
more numerous they are, the less will be the dis- 
tributive wealth in any community. That is, the 
less there will be for each individual on an equal di- 
vision. 

/j.^. The function of traders. 

The third class of producers, are traders. They 
are the persons who transport the commodities from 
the producer to the consumer. And, since in order 
to do so, they usually buy of the one, and sell to 
the other class, we call them traders. 

And, besides, transportation is not always an ele- 
ment — it is only incidental — they move the com- 
modity from one place to another, if such removal 



pEjRsojvs and wealth. 65 

be necessary. But the man who buys at wholesale, 
and retails what he has bought, or who buys merely 
to sell again, without so much as touching or look- 
ing at what he has bought, is a trader. 

^6. Their relation to quantity and intrinsic value. 

Now, the first fact to be considered with regard 
to traders, is, that they do not add to either the 
quantity, or the intrinsic value of the articles that 
make up the wealth of a community. 

I do not say that they do not add to the aggre- 
gate wealth of a community, so that the community 
is the richer for their existence — but what I now say 
is, that they neither add to the quantity of the ar- 
ticles that pass through their hands, nor yet do they 
improve the intrinsic value of those articles. For 
example : a dealer buys a thousand barrels of 
flour in one city, and transfers them to another, and 
sells them there ; the number of barrels does not 
increase by the way — -nor will the flour go any 
farther towards supporting human life, or promoting 
human happiness, than if it had been produced on 
the spot where it is to be consumed. 

^7. The ways i^t which they increase wealth. 

Trade and exchange then, add to neither of the 

5 



66 POLITICAL ECONOMY. 

factors of wealth, directly, nor can they add anything 
to wealth, save by indirect methods. 

(i) By carrying commodities from places where 
they are produced in abundance and with ease, to 
places where,, though needed^ they cannot be pro- 
duced. 

The people of England, for example, must have 
clothing, and it is cheaper to carry the cotton of the 
warmer latitudes, than it would be to raise anything 
that could be produced in England, to supply the 
place of cotton goods. ' 

The limit to the extent to which traders can in 
this way add to the wealth of the world, is the dif- 
ference between the labor of production, at the place 
of production, and the labor of production at the 
place where the article is wanted for consumption, 
minus the cost of transportation to that place. 

For purposes of consumption, we are obliged to 
consider each commodity as capable of being pro- 
duced, wherever they are wanted for consumption^ 
with a difference only in the labor cost. By the 
building of hot-houses, etc., etc., we can raise trop- 
ical fruits here ; but it is cheaper to raise them where 
no such appliances are needed, and to bring them 
here as articles of commerce. 

(2) One man, as a trader, may often do by way 
of making exchanges, in a given time, what it 
would take many men the same amount 'of time 
each to do, if each one had it to do for himself. 



PERSONS AND WEALTH. 67 

The office of a mail- carrier, is perhaps the best 
illustration of this principle. One man can carry 
the letters, etc., for a whole community, with the 
same ease and time that he could carry his own. 
Suppose, for example, that there are fifty letters per 
day from this place to New York. One man can 
carry them all, as well as for each one to carry his 
own. 

In the same way, the merchant who goes to New 
York to buy goods, can about as well buy a whole 
stock for the community in which he lives, as to buy 
only what he wants for his own consumption. And 
he thus saves others the expense and labor of going, 
each one for his own family. 

The saving by this means, is equal to the saving 
of time effected by one man's doing for several per- 
sons what each one would otherwise have to do for 
himself; for "time is always considered as money." 
If a man is not doing one thing, it is supposed that 
he will be doing something else, and making the 
best use of his time. 

Since trade adds nothing to the quantity, or the 
intrinsic value of the commodities it handles, there 
can be nothing to pay for any labor or outlay of 
any kind, beyond the limits already stated. So that 
the moment a merchant goes beyond that limit, and 
by his labor, raises exchangeable value above in- 
trinsic value at the place of consumption, he would 



6S POLITICAL ECONOMY. 

lose his labor, or his purchase-money, one or botlij, 
or a part of each, as he might choose to compute it. 

^8, Limits to their usefulness. 

These are the limits beyond which trade, or rather 
transportation, cannot increase the wealth of the 
world. But it may be made to increase the wealth 
of a single nation, a community, or in individual 
cases, to a point that bears no relation to the limit 
just named. England is perhaps an example in 
point, where trade has enriched a part of the 
world, far beyond the amount of increment to the 
general wealth of mankind, by her operations. 

It is no uncommon thing to hear persons speak 
of trade and commerce, as that which makes the 
wealth. Within the limits spoken of, trade does add 
to the wealth of the world, but no farther. 

It is indeed true that without trade there can be 
no great amount of wealth, none, or not many, ac- 
cumulated fortunes, no large or wealthy commercial 
cities. But when persons speak of trade as creating 
or making the wealth, they should amend their ex- 
pression, and say, not that trade makes it, but that 
it makes it to be here. It adds something to the 
amount of wealth in existence ; but it does far more 
towards accumulating it in certain places, and in the 
hands of certain persons — a comparatively few rich 



PERSONS AND WEALTH. 69 

persons — than it does towards the increase of the 
aggregate wealth of the world. It is no unfrequent 
spectacle to see one person, or one" community, 
getting rich at the expense of the rest of mankind. 
Hence, still more strongly than in the case of 
manufactures, the law that, so long as trade is done 
up to the extent that is necessary for the increase of 
the wealth of the world in the ways described — or in 
any other, if there be one — which, however, I do 
not know of, and cannot even imagine — \h& fewer 
the number of men engaged in trade, the better for 
the w^orld : and it will be better generally for each 
community, also, however great or however small. 

^g. Usefulness of the three classes compared. 

Agriculturists, therefore, determine the first factor 
of wealth, the quantity; and the manufacturers 
determine the second factor, namely, quality or 
value ; and for the present occasion, we must con- 
sider value, as utility or intrinsic value. The trader 
class, on the other hand, include all persons not be- 
longing to either of the others, who are of any use 
in any -way ; they really add to the wealth of com- 
munity indirectly, by savmg the time of the pro- 
ducers — the other two classes. The time thus 
saved is equal to the labor that can be performed in 
the time, and is equal to the number of laborers 
that would be required to perform it. 



70 POLITICAL ECONOMY. 

Traders, without adding to the intrinsic value, 6.0 
add to the exchangeable value of the commodities 
that pass through their hands, to the extent of their 
own labor ; and the limit to the possibility of trade 
is the difference between the intrinsic and the ex- 
changeable value of articles as they are when they 
are finished by the producer. For mere traders 
cannot force up the exchangeable value of articles 
above their intrinsic value. 

Consequently we are to look upon any measures 
that tend to reduce the number of men and the 
amount of capital needed for the trade, and for 
transportation, the buying, selling, and carrying of 
the world, as a benefit to the cause of human welfare. 

The means of reducing the men and money 
needed for exchanges, including the cost of trans- 
portation and the profits of the traders, are, 

(i) Bringing the producer and the consumer of 
any commodity as near together as possible, so as to 
save transportation, and every stage of increasing 
density of population is a move in this direction. 

(2) Tlie number of those that are necessary is 
diminished, moreover, by increased facilities for 
transportation, as canals, and railroads, steamships, 
telegraphs, etc. 

And the smaller the proportion of persons that 
will be sufficient to carry exchanges up to this point, 
the better for the community. For each person that 



PERSONS AND WEALTH. 71 

is unnecessarily so engaged adds one to the divisor, 
or rather constitutes one of the number that make 
up the divisor which we have to use in order to 
ascertain the distributive wealth, one to the number 
among whom the aggregate wealth must be distrib- 
uted, without adding anything whatever to the 
aggregate wealth, 

50, The function of inventors. 

There is indeed another class of persons who at 
first sight may appear to deserve a special recogni- 
tion among the creators of wealth, the inventors. 
They certainly can not be included among the agri- 
culturists, or the manufacturers, though agricultur- 
ists and manufacturers are often inventors and 
discoverers. They are hardly to be considered as 
traders, and yet their usefulness and function in aid- 
ing the creation of wealth, is of the same kind, and 
comes under the same law as that of the traders. 

By their discoveries and inventions they enable 
men to accomplish results with less time and ex- 
penditure than they could have done without such 
inventions and discoveries. Hence like the traders, 
by saving time they contribute indirectly to the pro- 
duction of value. 



72 POLITICAL ECONOMY. 

5/ All the population referred to the three classes. 

There remain for consideration, several classes of 
persons in every civilized community, which do not 
appear thus far to have been "^ located," to use a 
cant phrase. 

These are the men who labor indeed, but do not 
appear to be laboring upon the inanimate, or rather 
the impersonal objects we have been considering as 
making up wealth. They may be classed as, (i) 
teachers, (2) preachers or priests, (3) physicians, (4) 
lawyers, and (5) officials. Bankers, brokers, etc., 
are of course traders. 

The first then, I think, should be classed with 
manufacturers. They labor on, or for, meUy it is true, 
and man is not usually considered as an article of 
property, or as having exchangeable value. 

But we shall see bye- and- bye that both soul and 
body, as means and instruments of labor, come 
under the general law of capital as a means of pro- 
ducing value, and thus have an exchangeable value 
of their own. 

To a man anxious to realize the products of labor 
by means of the labor itself, often skill, a spiritual 
or mental quality, is of more value than the tools or 
machinery. Tools and machinery are worth but 
little, if anything, without strength and skill to use 
them. 



PERSONS AND WEALTH. 73 

Now the legitimate sphere of the teacher, is to 
improve the mind — the skill ; and that of the phy- 
sician, is to improve the body, or strength, and this 
is true none the less, on account of the fact that he 
is needed only in case of sickness or accident 

So, too, the preacher and the priest — if he so ad- 
ministers his office as to have any right to subsist at 
all — is a means of improving the soul, not only pro- 
moting the happiness, by the gratification of the 
religious instincts, but also, by connecting moral 
teachings with religious convictions and feelings, 
improving the moral character of the people, and 
thus increasing their intrinsic value. 

As a means of production, the skill imparted by 
the teacher has a value that is readily appreciated 
and acknowledged. But the labors of the preacher, 
the man who makes moral culture, honesty among 
men, as a contributor to the intrinsic and produc- 
tive value of man, is not so generally appreciated. 

But in his capacity as a teacher and promoter of 
good morals, he is an economic benefit in another 
way. Like the policeman who protects our prop- 
erty, and thus saves us whatever time and expense 
would be necessary to do it for ourselves, and with 
far inferior results — the preacher, to the extent of the 
influence of his office, accomplishes the same thing. 
He helps to make life and property secure, and thus 
saves us the necessity for much of the time and care 



74 POLITICAL ECONOMY. 

and labor and anxiety, that would otherwise be re- 
quisite to protect what we have, and he thus enables 
us to devote the time and labor to production with in- 
crease of results. 

The two classes last named, lawyers and officials, 
belong as I think, with equal certainty, to the class 
of traders. 

The first class, lawyers, are necessary that people 
may know their rights, how to deport themselves in 
their dealings with one another. And a lawyer, 
by being learned in the law, and so, ready to answer 
the questions of several hundred clients, on the in- 
stant of their asking, saves them the time that would 
be requisite to investigate, each one for himself, or 
the still greater risk of doing wrong from not having 
investigated the law. 

Officials are those who are engaged in making 
and administering the laws — including, therefore, 
legislators, assemblymen, congressmen, senators, 
etc., judges, executive officers of all grades, and the 
army and navy ; these are necessary to make, in- 
terpret officially, and to enforce the laws, so that the 
innocent may be protected, and all persons may 
possess, use, and enjoy the products of their own 
labor. 

Like traders, they save labor by making the 
products of labor secure to the laborers themselves. 
It will take less labor to support a family when the 



PERSONS AND WEALTH. 75 

laborers are so protected, than when a share of it is 
subject to the depredations of thieves and robbers, 
and the earnings of each one is diminished thereby. 
Again, they save labor by relieving the population 
to a large extent of the necessity of providing se- 
curity against fraud and violence. A "safe" that is 
burglar proof, if such a thing can be produced, costs 
thousands of dollars. A police administration that 
would protect the property, would render this ex- 
pense unnecessary. 



CHAPTER IV. 

OF THE FORCES OF NATURE IN RELATION TO 

WEALTH. 

Reduction of prices — Limit to the decrease — The use of tools and 
machinery — Their relation to the forces of nature — The forces 
of nature defined — The forces of nature gratuitous — They are 
inexhaustible — Conditions of their use — Extent of their useful- 
ness — Man's position in nature — Effect of machinery on price 
— Why not uniform in its influence — Recapitulation and sum- 
mary — Elements of the labor of production— Land both a tool 
and a force — Ricardo's theory of rent — Criticisms on the theory 
— Land never costs more than the average cost of reproduction 
— How far Ricardo's theory correct — Effect of a limit to the 
supply of land — What makes the price of land — Land rises in 
price with cultivation — New intrinsic values with increased 
population — Increased value of human labor — Exchangeable 
value referred to its elements — Taxes and insurance — Com- 
modities become cheaper. 

^2. Reduction of prices. 

There are several considerations that tend to re- 
duce the average cost of reproduction with the 
advance of civilization. 



FORCES OF NATURE AND WEALTH. 77 

(i) The utilization of new materials. The appli- 
cation of iron where only brass had been used 
before — the introduction of maize or Indian corn, 
and potatoes, as articles of food, after the discovery 
of America — the use of cotton as a material for 
clothing — are all examples of the fact that the 
addition of any new material to those already in 
use for the supply of articles in its kind — as corn 
and potatoes for food — cotton for clothing — reduces 
the cost of a supply of the articles of that class to 
the consumers. 

(2) The second, and by far the greatest, is the 
utilization of any force of nature by which the 
amount of human labor needed for the production 
of commodities of any class, is made less. The 
appHcation of machinery, propelled by water or 
steam, to the manufacture of cloth, is an example. 
Many articles cost less than one-fourth as much 
now, as articles of the same quality did before this 
improvement in the process of manufacture. 

5^. Limit to the decrease. 

In case, however, there is a limit to the supply of 
raw material which man can not overcome, we shall 
have a reversal of this law. 

Thus in England the supply of coal is limited, 
and as the point of exhaustion approaches, the 



78 POLITICAL ECONOMY. 

amount of labor necessary to mine it and get it to 
market, must increase. And so if the quantity is 
not actually limited beyond the power of man to 
reproduce it, as in the case of all forms of minerals, 
there may be a limitation of another kind which 
will increase the labor of reproduction. Take for 
example, the case of whale-oil — and again those 
vegetable products which require many years to re- 
place them when once exhausted — as pine lumber, 
and the average cost of reproduction will be an in- 
creasing one. 

5^. The use of tools and machinery. 

Man as a Iboorer can do but little without the aid 
of strength other than his own. Hence we find 
him, even in the rudest and lowest state, making and 
using "tools." 

Tools are but implements for utilizing the forces 
of nature. 

Both words, "tools" and "machinery," are in use. 
But for the purposes of Political Economy there is 
no difference between them. In common use, how- 
ever, we call that a "machine" in which there is a 
combination of parts, changing relation in reference 
to each other. While that which consists of parts 
so united that they do not work upon one another, 
as in the case of the axe and its helve — the adze 



FORCES OF NATURE AND WEALTH. 79 

and its handle — the scythe and its snathe, — we call 
each of these simply a "tool." 

55. Their relation to the forces of nature. 

Tools and machines are not forces, but only means 
for utilizing forces ; the real forces of nature, which 
man has utilized are animals, the wind, streams of 
water, steam, etc. 

A tool is not usually considered as using up this 
force, nor even of the muscular force of man him- 
self When a man throws a stone, he uses a force 
of nature. In pounding and driving with a hammer 
or sledge, he uses the same force. The savage who 
hunts with his bow and arrows, and the watch- 
maker who cuts his main-springs to propel the 
wheels of the watch, alike use the forces of nature. 

A "machine," on the other hand, running as it 
always does, with more or less of friction, uses up a 
part of the force that propels it. It takes some part 
of the force, as in case of water-wheels and steam- 
engines, to propel the machinery itself. 

^6. The forces of nature defined. 

The real forces in all these cases, and in fact, the 
only real forces any where, are substantial objects — 
water, wind, the earth, and the visible and tangi- 



8o POLITICAL ECONOMY, 

ble objects that are around us. In fact, there is no 
material object, mineral plant or animal, that is not, 
in some relations and for some purposes, a force. 

The mind of man is a force, and one of the most 
important forces in nature. Even God himself is a 
force. But in this connection, we are speaking only 
of those forces that are subject to man. 

And as most of these objects are forces in dif- 
ferent senses, and for different purposes, in the va- 
rious conditions and relations of which they are 
susceptible, as water when running, air or wind 
when blowing, steam when confined, iron when 
magnetic — it is more common to speak of the ab- 
stractions — heaty gravity, electricity, etc., as the real 
forces, and no harm can come from such a use of 
terms, so far as mere Political Economy is concerned. 
But the fact to be noted is, that neither, tools nor 
machinery, are forces. The forces of nature, as we 
have said, are various ; they are for the most part, 
running water, wind and steam, and tools and ma- 
chines are merely the means of using these forces. 

57. The forces of Jiatiire gratuitous. 

Now, the fundamental fact is, that these forces are 
gratuitous, they have no exchangeable value, they 
cost nothing ; and the only cost in using them is the 
labor of making the tools, machinery and other ap- 
paratus necessary for their utilization and use. 



FORCE'S OF NATURE AND WEALTH. Si 

This would result from the definition of value, 
intrinsic and exchangeable, already given. But it 
results also from another consideration. Take the 
case of a steam-engine. When we have taken out 
the cost of the engine, of the fuel, the oil, etc., the 
labor, if any, in providing for a supply of water, as 
digging a well, laying an aqueduct, etc., we have 
reckoned all that costs anything for the running of 
the engine, except of course, the labor of tending 
and using it. We bestow no labor on the forces 
themselves, and consequently they have no ex- 
changeable value ; they have intrinsic value indeed, 
but they cost really nothing. The engine, the fuel, 
oil, etc., necessary to utilize them, take time and 
labor, and they cost something. 

^8. They are inexhaustible. 

The forces are inexhaustible. This results from 
the fact that man can only change the form of ma- 
terials, he can neither create nor destroy. Nor can 
he change the fundamental or ultimate properties of 
bodies. He may expand water into steam ; but the 
steam will condense into water again, and then is 
ready for another expansion. He may burn wood 
and coal, and thus convert them into carbonic acid 
gas, vapor, and residuary earthy matter in the form 
of ashes ; but these very materials will combine 
6 



E2 POLITICAL ECONOMY. 

again in the processes of vegetable growth, and 
form combustible matter^ ready to be burned as 
before. 

The manufacturer of cutlery, far example, con- 
sumes steel and coal^ the coal he bums and con- 
sumes, the steel he manufactures into wares that he 
offers for sale. He uses a steam-engine, etc., in 
order to utilize the force with which water, heated 
to boiling point, expands, and the force propels the 
machinery. But the steam immediately becomes 
water again, and the elements into which the coal is. 
resolved by combustion, unite again in reproduction 
of living trees and plants. 

5p. Conditions of their use. 

If now man can accomplish more in a given 
period by producing these tools, etc., and then using 
them in guiding the forces of nature, than he could 
without, this use of machinery is a gain to the cause 
of wealth. It produces a given value with less 
human labor than it could have been produced for 
without. 

60. Extent of .their usefulness. 

To give some idea of the extent of this help to 
man in his labor, I mention the fact that it has been 



i 



FORCES OF NATURE AND WEALTH. 83 

computed that the ''machine force," as it is called, 
that is, the efficiency of the forces of nature, and 
chiefly, water, wind, and steam, utilized in manufac- 
tures in Great Britain, is equal to about twenty times 
the muscular force of all the inhabitants in that 
kingdom. That is, the people are able, in the aggre- 
gate, to do twenty times as much with machinery, 
as they could do without the aid of these forces 
which are utilized to them by means of machinery. 

But even this must be a very inadequate estimate, 
for it includes only the use of such forces as water, 
and steam, and wind, used in the propulsion of 
machinery. If then we consider the increment of 
efficiency given to man's labor by the use of tools, 
as they are called, we should arrive at a very differ- 
ent result, and no adequate estimate of it could be 
made. 

In the analysis of the labor that enters into the 
cost of the commodities we buy, I have taken no 
note of the fact that the price of an article is often 
for a time, and at a particular place, forced up far 
beyond what would thus be indicated, by the efforts 
of what are called ''speculators." Doubtless such 
things occur, and they are as exceptional and abnor- 
mal in the estimate of Political Economy, as they 
are heartless and wicked in a moral and philan- 
thropic point of view. 

PoHtical Economy, however, is not responsible for 



§4 POLITICAL ECONOMY. 

these things, and can take no notice of them except 
as of evils to be removed. 

6i. Man's position in nature. 

Hence it would seem that man's work in this 
world is that of an engineer, to guide the forces of 
nature ; to tame and utilize them, and make them 
do his work for him ; to use his strength, whatever 
it may be, in guiding them, that they may bear his 
burdens, and draw his loads, push his tools, and drive 
his machinery for him, rather than to do this heavier 
work himself; they are the wild horse which he is 
to catch and tame, and the tools and machinery are 
but the bridle and the harness with which the brute 
may be made to drag his loads and carry his bur- 
dens, and carry even himself, also, as a rider. 

Human labor may be regarded as a constant fac- 
tor, but the materials utilized, and the forces of 
nature subjugated and made available for their pro- 
duction and manufacture, are variable. 

Hence denoting the cost of any article in any 
particular class by C, and the materials utilized by 
M, and the machine-force by F, we have this dif- 
ferential equation, 

d(Mx FJ = —dC 
That is, every improvement in the materials utilized, 
or in the machinery used, will cause a correspond- 



FORCES OF NATURE AND WEALTH. 85 

ing decrease in the cost of that particular article, 
and by consequence, in all the articles of its class, 
and then by degrees, in th^ cost of all other articles 
though not of its kind, ' 

62. Effect of machinery on price. 

Thus the discovery of cotton and the invention 
of the machinery for making cotton goods, have re- 
duced the price of all clothing materials, silk and 
woolen as well as cotton; and by releasing labor 
from the production of commodities used for cloth- 
ing, it has increased the supply of labor for the pro- 
duction of other things, and thus reduced their 
prices also. This reduction in price, however, as 
already said, will not occur when there is in the na- 
ture of things a limit to the possibility of increasing 
the supply. In such cases the price will rise under 
the law of supply and demand, and the exchange- 
able value is likely to rise also, because of the in- 
creased difficulty of procuring a given quantity of 
the article, the more we approach the limit of its 
final exhaustion, until the price shall have reached 
the highest intrinsic value of the article for any use 
whatever. 

63". Why not zmiform in its influence. 

Again the reduction in the average price will not 



86 POLITICAL ECONOMY. 

be uniform in all commodities. And in some it 
may not be apparent because of an increase in the 
intrinsic value. 

The best quality of cloth in market now, may be 
no cheaper than the best cloth was many years ago ; 
but then it is better than could have been bought 
then at any price. In fact this increase in the in- 
trinsic value given to all articles by the superiority 
in the process of manufacture, goes far to obscure 
the important law we are discussing. 

Again there is another reason why reduction in 
the average price of articles will not be uniform. 
It will be greatest in those things in the production 
of which machinery can be used to the greatest 
extent, and with the greatest advantage. 

Hence the reduction in the price of agricultural 
products, and of **raw material" generally, may not 
be very great. In some articles there may be no 
reduction. And in some, under the influence of the 
law of limitation spoken of, there may be indeed an 
increase of price. 

And in regard to manufactured goods, the reduc- 
tion will be most apparent, and if we allow for the 
increase of intrinsic value or improvement in quality 
already spoken of, the reduction will be the great- 
est in the most highly manufactured commodities. 
And yet, even this difference will not be so great 
as the difference in extent to which the ma- 



FORCES OF NATURE AND WEALTH. 87 

chinery is used. And it is quite possible that in 
some cases the increase in the intrinsic value may be 
so great that there will be no reduction in the price 
of the article. In other cases, the article will be 
poorer and very much cheaper. This is probably 
the case with shoes and clothing made by machinery. 
But taking all things together, the general law 
stated with regard to a reduction of prices just in 
proportion to a reduction in the amount of human 
labor, will hold good. 

Prices have a wonderful power of equalizing them- 
selves. The release of some laborers from manu- 
factures and trade will increase the number that will 
be devoted to agriculture, and thus produce an effect 
on the price of agricultural commodities also. 

64^ RecapitidutioH and summary. 

Having now arrived at a very important result in 
regard to the cost of the commodities most in de- 
mand in any civilized country, it may be well to re- 
call and recapitulate the most important steps we 
have taken, 

(i) Every object in nature has intrinsic value. 
The first class of laborers — the producers — give to 
articles exchangeable value, increase their intrinsic 
value, and determine their amount 

(2) The second class, the manufacturers, increase 



SS POLITICAL ECONOMY. 

both the intrinsic and the exchangeable value^ 
though the latter less than the former, they deter- 
mine the intrinsic value^ but they add nothing to the 
amount. 

(3) The third class, the traders, increase the ex- 
changeable value, but they add to neither the in- 
trinsic value nor the amount of the commodities 
they deal with. They add to the wealth of the 
community only by saving the time and labor that 
would otherwise be required to accomplish what 
they, in their appropriate way, perform. 

6^, Elements of the labor of production. 

What we pay for when we purchase an article, is 
simply human labor. This may be resolved into 
several elements> in order that the truth of the propo- 
sition may be more readily seen. 

(i) The labor actually expended by each of the 
classes, producers, manufacturers and traders. 

(2) The labor actually bestowed in making the 
tools, machinery, etc., by means of which the forces 
of nature were utilized and made to do man's work 
in each of these departments — or rather that part 
of the tools, etc., which was tisedtcp, worn away and 
destroyed by the labor actually bestowed on the 
article, whose price may happen to be under con- 
sideration. 



FORCES OF NATURE AND WEALTH. 89 

In the wages paid to the immediate laborers, as 
the producers, the manufacturers and the farmers, 
there is included the three-fold element. 

(i) The amount which they must pay for, (a) the 
food they consume, (b) the clothes they wear out, 
(c) the houses in which they live, as well as (d) cer- 
tain other incidental and inevitable personal ex- 
penses. Something of each of these items must 
enter into the cost of the production of every com- 
modity that has exchangeable value at all — and all 
of them cost labor, or the products of labor, and 
cost only the labor that is put into them. 

(2) That portion of the increment of the aggre- 
gate wealth of the community which, under the or- 
dinary name of "profits," goes, or should go, to 
each laborer as something more than is needed for 
food, clothing, etc., as specified above, and which by 
care, frugality, and economy on his part becomes 
his wealth, his private property, his fortune, his 
means of independence, which he can use as capital 
to increase the productiveness of his own labor, or 
as means to promote his own ease and comfort, his 
culture and the improvement of his own social po- 
sition. 

66. Land both a tool and a force. 

Among the means that man can or does use, there 



90 POLITICAL ECONOMY. 

is none in more constant use — none more indis- 
pensable than land itself. 

When we consider that food is the first want of 
man in an economic point of view, the first thing to 
be sought and the last to be reHnquished, when 
supplies begin to fail, and the further fact that man 
can eat only that which has been put into organic 
form, either vegetable or animal, and that no veg- 
etable or animal matter can be produced without the 
aid of soil — we see at once that soil or cultivated 
land must be the great force of nature upon which 
man depends. It is that which makes plants and 
animals grow for his use. 

In the first place, it is necessary for us to con- 
sider whether land used for agricultural purposes is 
to be regarded as a "force," or a "tool" by which 
we use the force, and whether in fact it be not both 
in one. Perhaps we shall find a solution of the 
difficulty in the fact that it is both, and that the 
writers have failed of the right conclusion by not 
properly so regarding it. 

Doubtless land is a force ; for without man, it 
brings forth plants, and causes the elements to unite 
into organic forms, and thus produces results, plants 
and animals, that are of inestimable intrinsic value. 

But it is also a "tool," an implement, or a ma- 
chine by which man is able to unite these elements 
into the forms in which they serve him for food and 



FORCES OF NATURE AND WEALTH. 91 

clothing, and nameless other purposes, as he could 
not unite them, and they would not be united, with- 
out. He cannot eat the chemical elements, or the 
mineral compounds. And much of what the un- 
cultivated soil produces^ will serve him no better. 
He depends upon the soil for vegetable food, and 
upon it, too, for the growth of that which will supply 
him with animal food. 

Hence, as a force of nature, it may be gratuitous, 
while as a '^ tool,'' or means of utilizing the heat, 
light, etc., that combine the elements needed to con- 
stitute food and clothing, it may have an exchange- 
able value or be subject to rent. 

6j. Ricardds theory of rent. 

Ricardo defines rent to be the amount that is paid 
for the intrinsic properties of the soil. 

He illustrated and proved his proposition in this 
way. At the first settlement of a country, the 
settlers naturally select the best and most productive 
lands. In the next generation more land is needed, 
and land of a poorer quality will of necessity be 
taken into culture. Land No. i, that which was 
first taken up, will come to have a rent equal to the 
difference between its productive powers and those 
of No. 2. Soon, with the increase of population, 
more land is wanted and No. 3 is taken. The rent 



92 POLITICAL ECONOMY, 

on No. I now is raised by an amount equal to the 
difference between No. 2 and No. 3, and No. 2 
comes to have a rent equal to the difference between 
No. 2 and No. 3, and so on until all the land that 
will produce enough to support the cultivators, or 
pay for the labor of cultivation, is taken up. 

68. Criticisms on the theory. 

Our answer is two-fold. 

(i) First, in regard to the fact, it is not true that 
the earliest settlers take the most productive land. 

They^ generally begin on the hill slides, or hill 
tops, where the woods are easily cleared, and where 
they are free from the dampness and malaria of the 
lower but more productive soils. So that what they 
naturally begin with is, on the whole, about the 
average in point of natural productiveness. Proof of 
this may be seen anywhere in our country ; and in 
all countries the most productive lands are generally 
those that need most labor to bring them into culti- 
vation, clear them off, under-drain them, and other- 
wise make them susceptible of culture. 

(2) But in the second place, land, Hke other com- 
modities that are bought and sold, never costs more, 
and seldom costs so much as the average value of 
the labor needed to reproduce it. 

In the midst of Africa, or Australia, land in a 



< 



FORCES OF NATURE AND WEALTH. 93 

state of nature, and as good as can be found any- 
where, has, nevertheless, no exchangeable value — 
no price ; nobody buys or sells land there. 

But let civilized man make his appearance, clear 
off the forests, and put the soil in a state for culture, 
and the land has a price. Let towns be built, and 
roads constructed ; churches, school-houses, etc., be 
erected — all of them products of human labor — and 
with every added day's labor on these public im- 
provements, every foot of land rises in exchangeable 
value. 

6g. Land never costs more than the average 
cost of reproduction. 

But it never rises above the standard already laid 
down, the amount of labor thus expended upon it, 
or rather the average cost of reproduction. 

The real estate of New York State, was estimated, 
in 1850, at $1,200,000,000. This would pay for the 
labor of one million of men for four years, working 
three hundred days in a year, at one dollar per day. 

But manifestly that amount of labor would not 
change the State of New York from what it was 
when Europeans first settled it, to what it is now. 
Consequently the State could have been bought in 
1850, for less than the cost of the human labor 
used up in making the improvements upon it. 



94 POLITICAL ECONOMY. 

The real estate of Great Britain is estimated at 
about $10,000,000,000: this would pay the wages 
of four million men for ten years, at the rate of two 
hundred dollars per year. But that amount does 
not represent the labor that has changed England 
from what it was in the days of Julius Caesar, to 
what it is now. Nor could that amount, with all 
modern improvements of tools and machinery, re- 
produce an England, if we had the raw materials 
and the opportunity to reproduce it. 

The same will undoubtedly be found to be the 
case with any portion of land that is so large that 
its inhabitants may be regarded as a nation or com- 
munity by itself And this fact is important, for 
there is no one farm or small tract of land whose 
price is determined by itself, its own condition, and 
the improvements upon it alone, regardless of its 
surroundings. 

If now the money value of the real estate of a 
country be less than the cost of the labor that 
would be required to reproduce the improvements 
that are upon it, it is manifest that in buying it we 
pay for only the labor and not fully for even that. 

70. How fai' Ricardd s theoiy correct. 

It is undoubtedly true, however, that whatever 
may be our theory of rent, the piece of land v/hich is 



FORCES OF NATURE AND WEALTH. 95 

most productive, will command the highest rent, 
whether the superiority in this respect is owing to 
natural differences, or to the skill and labor of those 
who have had the direction of its use and culture In 
past years. To this extent Ricardo's theory is in 
accordance with fact. 

But there is another Important fact that the theory 
overlooks. In case lands No. i and No. 2 were per- 
fectly equal In natural fertility, yet any person wish- 
ing to use land would doubtless prefer to pay rent 
for No. I, which is already under cultivation, rather 
than take No. 2 for nothing; and the rent In this 
case would be equal to the labor required to put No. 
2 in as good a condition as No. i Is In already. 
And this accords with the facts I have just stated ; 
but it hardly accords with Ricardo's theory. 

7/. Effects of a limit to the supply of land. 

There Is, however, one modification of the law 
of ''exchangeable value equals the average cost of 
reproduction," which we must take special notice of 
sometime, and which may possibly have an applica- 
tion to cases of land as subject to this law. 

It is this. Where there Is a limit to the possibility 
of reproduction, price, under the law of supply and 
demand, will rise permanently above exchangeable 
value, and intrinsic value must take the place of it 
in our calculations. 



96 POLITICAL ECONOMY. 

And although there are still millions of acres un- 
occupied, yet something of the effect and operation 
of this law is already felt in most of the old coun- 
tries of the world, and will be felt in each country 
as its population gets to be pretty dense, and its land 
quite fully brought under cultivation. Attachment 
to cotintry, and the cost of emigration, will induce 
many to pay for land at home, more than it is really 
worth, more than it would cost to make a new home 
elsewhere, rather than go to a new country and 
leave all they hold so dear behind. 

y2. What makes the price of land. 

Land, therefore, is both a force and a tool. As a 
force it is gratuitous, as a tool it has cost man more 
than the average cost of reproduction, and can be 
bought for less. 

The formula thus far developed, however, will not 
be sufficient to determine the price of any particular 
piece of land. For particular pieces Ave have to 
take into account, (i) the labor spent on it, (2) the 
labor spent on the land around it. 

Every house that is built in the neighborhood to 
be inhabited by man ; every road that is built, in- 
creasing the facihties of getting to market; every 
public building, as school house, church, etc. ; and 
in fact every pubHc work or improvement of any 



FORCES OF NATURE AND WEALTH. 97 

kind, adds something to the value of every foot and 
acre of land in the immediate neighborhood of the 
place where it is built 

Nor is this influence confined within any narrow 
limits. The removal of an obstruction in the Hud- 
son river, for example, whereby the time and risk 
of transportation between Albany and New York, 
is diminished, adds value to every foot of land in 
all the north-western part of our country from which 
any commodity, agricultural or mineral, may come 
to New York for consumption, or through New 
York, to enter the commerce of the world. 

J J. Land rises in price with cultivation. 

Another consideration occurs, as modifying the 
price of land, namely, while all other commodities 
tend constantly towards a lower exchangeable value, 
as civilization advances, and population becomes 
more dense, land, on the other hand, is constantly 
tending upwards, demanding a higher price per 
acre, is constantly rising in exchangeable value. 

But the exception is only apparent 

In all other cases we buy the finished product, 
and compare such product with another, as a coat, 
a hat, or pair of boots, etc., with the same articles 
as finished and fit for wear, or final consumption. 

In the case of land, however, we compare not one 
7 



98: POLITICAL ECOJSrOMY. 

article with another of the same kind, but the same 
article with itself iii different stages of its manu- 
facture. 

In an advancing civilization, with a population in- 
creasing in density, something is done every year on 
the land or around it, to improve its value, to carry 
it towards a higher state of perfection, and to give 
it an increased intrinsic value, as a means of getting 
a living and supplying human wants. It is as if we 
would compare the material for a coat, in the suc- 
cessive stages of its manufacture, from the time when 
it is but undressed wool, just clipped from the sheep's 
back, up to the time when it is ready to be put on 
and worn. Doubtless, at each successive stage, we 
should find it increasing in value and in price, as at 
each, more labor will have been bestowed upon it. 

^7. New intrinsic values with increasing popula- 
tion. 

There is still another reason why land should be 
constantly commanding higher prices, in an advanc- 
ing civilization. To say nothing of its increasing 
intrinsic value as building lots, the products that are 
raised upon it, even if no more per acre in quantity^ 
command a higher price. The proximity to market 
reduces the cost of transportation and exchanges, so 
that a given amount of labor on a piece of land, in 



FORCES OF NATURE AND WEALTH. 99 

a thickly populated district, though the land will 
produce no more bushels of wheat, etc., will never- 
theless, produce more tnoney, in consequence of the 
wheat's commanding a higher price. 

It has happened in our country, that while wheat 
was worth one dollar and a half in New York, it 
was not worth enough to pay the cost of cutting and 
threshing it in Minnesota. 

The English writers are extremely unwilling to 
admit this doctrine of rent. In fact I do not re- 
collect a single one of them tliat has admitted it. 
Thus Mill (B. I. ch. I. § 2): "Rent is a price paid for 
a natural agency." It is the result of a monopoly. 
<B. II. ch. 16. § I.) 

But suppose there were but two men in all Eng- 
land, who wanted any land for any purpose, and one 
of them was in possession of a tract, had it already 
cleared, under- drained, fenced, and in all respects in 
a good condition, and the other could have a tract ad- 
joining, in every respect except these improvements, 
as good, would not he be willing to give the owner 
of tract No. i, as much for his, as it would cost him 
to clear off a new tract and make the necessary im- 
provements on it, rather than take up the wild, un- 
improved land ? Of course he would ; and yet here* 
would be no "monopoly," no limitation of quantity. 

Will Mr. Mill say there is a monopoly of im- 
proved land? 'So there is indeed; but what will 



loo POLITICAL ECONOMY. 

the purchaser pay for it ? Evidently the cost of 
reproduction. And what does he pay for? That 
may be only a matter of theory and of words. I 
say the labor of production. The amount paid 
never even equals that amount. 

We find, therefore, no occasion to regard land as 
constituting any exception to our rule, that what we 
pay for in buying an article, is only human labor,, 
and that the amount we pay in the ordinary course 
of business, never exceeds the average cost of re- 
production. 

7jr. Increased vahie of human labor. 

Hence the obvious inference, that what we pay 
for in purchasing any article is only the human labor 
which has been bestowed upon it, or has in some 
way contributed to, and constituted its exchangeable 
value. And this proposition is as true of land and 
fixed capital, as it is in regard to the other commodi- 
ties we may have occasion to buy, although its truth 
may not be so obvious in the one case as in the 
other. Its application to real estate, however, I 
shall reserve for consideration in a subsequent 
chapter. 

The proposition just enunciated, that what we pay 
for is only human labor, is fairly deducible from two 
of the propositions already established, namely : 



FORCES OF NATURE AND WEALTH. loi 

(i) Things in a state of nature and before human 
labor has been expended on them, have no ex- 
changeable value, whatever may be their intrinsic 
value. 

(2) The forces of nature are gratuitous and inex- 
haustible, having no exchangeable value in them- 
selves, so that whatever their utilization and use 
may cost us is only the labor necessary to make 
them subservient to our use. 
y6. Exchangeable value referred to its ele^ne^its. 

The labor that we pay for in buying any com- 
modity may be considered under several heads. 

(i) The labor that was expended by the agricul- 
turist — farmer, miner, etc. — in producing the raw 
material. 

(2) The labor of the manufacturer in the conver- 
sion of the raw material into the finished commod- 
ity. 

(3) The labor that has been employed in making 
the tools and machinery that were used either by 
the agriculturist or manufacturer. 

(4) The labor expended in producing the mate- 
rial used in running the machinery, as coal, oil, fuel, 
lights, etc. 

(5) The labor required in producing the food, 
clothing, shelter, etc., of the laborers, while at work 
on the comm.odity. 

And to these we must for the most part and per- 



102 POLITICAL ECONOMY. 

haps always, add the labor of the trader in trans- 
porting it from the producer and retailing it to the 
consumer. 

But this will form no exception to the law just 
stated. For whatever the trader gets for his share 
IS only the compensation for (i) his time, (2) per- 
sonal expenses for clothings etc., (3) capital used, as 
money,, teams, canals, rail-roads, etc., for each and 
all of which he has to pay something. But they 
are only products of labor, 

77, Taxes and insurance. 

It is possible that in order to make our statement 
a little more complete, we ought to add the item of 
taxes, insurance, etc. 

Taxes are imposts on either men or the products 
of their labor, levied as a means of supporting gov- 
ernment; that is, for paying for the labor of those 
that are engaged in making and enforcing the laws, 
protecting life and property. 

Insurance is money paid to others for sharing our 
risks with us. I doubt if it really adds to the cost 
of the articles we buy, in general. There will be 
special cases where we pay something extra for it. 
But in other cases the cost of articles will be less in 
consequence of it. But if not, and if there be an 
item of this kind to be taken into account in esti- 



FORCES OF NATURE AND WEALTH. 103 

mating the cost of commodities, it goes simply to 
pay the parties who are in the insurance business 
for their labor in equalizing the losses that are in- 
separable from the business relations of men, and in 
saving the unfortunate from utter ruin, and the con- 
sequences of such ruin to those that are employed 
by or dependent upon them. 

But at all events, in any view, it tends to, and 
centralizes in, the one item — human labor. 

y8 Commodities become cheaper. 

Now from this it results that in the advance of 
civilization there will be required with a greater util- 
ization of the forces of nature in the use of ma- 
chinery, a constantly diminishing quantity of labor, 
to produce given results — with, of course, therefore, 
less cost to the consumer, or, what is more likely, 
larger production — at lower rates and a much more 
extensive consumption, with an improved condition 
of the people. 

It is indeed true that in accordance with a law 
already stated, there are many exceptions to this 
rule. When man has no control of the supply of 
any commodity, and the amount is limited in 
nature, there may be an increase of exchangeable 
value, and so of price, as we approach the period 
when exhaustion is imminent. If it should be as- 



104 POLITICAL ECONOMY. 

certained that the amount of iron that exists in 
form of ores in the earth was approaching exhaus- 
tion, the price of the article would immediately 
increase. 

But it has thus far been found, and I presume it 
always will be the case, that as one commodity gives 
out, another will be found. When whale oil was 
becoming too expensive for use, kerosene was dis- 
covered. And when coal gives out, and give out 
it must sometime, I have no doubt some other means 
of heating will be found to take its place. But we 
do not need now to contemplate any such result ; the 
period is too far off to affect any of our present 
theories or business arrangements. 

Hence in every stage of an advancing civilization 
human labor becomes more effective, and avails 
more and more, in the production of those articles, 
whether of necessity, convenience, or mere luxury, 
that minister to and satisfy human wants. And 
with each such advancing stage, therefore, the price, 
the actual labor-cost of nearly every article, should 
be less than in any preceding stage ; and in the ag- 
gregate, the cost of the means of living and of 
refinement, and- highest culture, too, should be 
cheaper, more easily obtained, and within the reach 
of a proportion of the community, which is con- 
stantly increasing and will continue to increase until 
the means of comfort and culture and enjoyment. 



FORCES OF NATURE AND WEALTH. 105 

will be within the reach of all who will labor to pro- 
cure them. 

Poverty, destitution, actual want for those that 
can and will labor need not, should not, exist. Ev- 
ery man's wages should be sufficient to provide for 
himself, and "those that are of his own household." 



CHAPTER V. 

OF POPULATION IN RELATION TO WEALTH. 

The emergence from savagery to civilization — Tendency of savage 
life downwards — Civilization or education upwards — Num- 
bers necessary to the use of the forces of nature — Origin and 
use of capital — Capital represents only labor — The first effect 
of an improvement — The second effect — The ways in which 
density of population affects wealth — (l) Division of labor — 
Saving of capital — Increase of knowledge of materials — In- 
creased skill and dexterity — Adaptation of natural abilities — 
Saving the time of others — Division of labor implies co-opera- 
tion — Limits to the division of labor — (il) Saving in the cost of 
exchanges — Saving in labor and travel — Saving in the cost of 
roads — Saving in teams, etc. — The saving by living in villages 
— (ill) Increased stimulus to production — (iv) Articles come 
to have new values — (v) Increase in the proportion of agri- 
cultural population — Modifying considerations — Waste in rela- 
tion to the increase of wealth — Unproductive capital — Moral 
influence of having the producer and the consumer near to- 
gether. 

It is customary in the discussions of Political 
Economy, to consider man as having begun his ca- 
reer on earth in the lowest state of savagery, and as 



POPULATION AND WEALTH. 107 

having gradually grown up to the present state of 
civilization. This assumption with regard to his 
civilized condition may be all wrong, and in fact, I 
believe it is so. But we are obliged, nevertheless, 
to contemplate society as either advancing or retro- 
grading. And for the most part, we have to con- 
sider it as beginning at a very low state, and ad- 
vancing up towards a higher and better one. 

7p. The eme^^gence from savagery to civilization. 

Suppose then, a savage population on some island, 
or in some river-basin, surrounded by mountains, or 
deserts, or other nearly impassable barriers; they 
would soon increase in numbers, until the territory 
they inhabit would no longer support them as 
savages. One of two things — emigration being left 
out of the account — must occur. Either (i) they 
must resort to infanticide, to the killing of the old 
and the infirm, and very likely cannibalism — or (2) 
they must go to work, domesticate the useful ani- 
mals and cultivate the soil. 

80. Tendency of savage life dozvnwards. 

And the alternative is one of tremendous impor- 
tance. It is one of the turning points, one of the 
places where the ways divide off, and lead to the 



io8 POLITICAL ECONOMY. 

most widely different and most important results. 
If they are indolent and brutal enough to take the 
one course — the first named — they become more 
and more brutalized by the habits to which that 
course leads them. It deadens the domestic af- 
fections, and aggravates all the baser, lower and 
more brutal passions. It is the beginning of an 
education downwards towards something that is 
lower than mere brute beasts can ever become. It 
is the savagery of natural history and of fact, as 
we find it now in some of the darkest corners of the 
earth, and in abodes of the most degraded men in 
some of our large cities. Thus, not the manly, 
heroic, noble creature which constitutes the savage 
of the poets and romancers, but rather something 
"having" as has been said, "nothing of humanity 
but the form," is the result of this course. 

8i. Civilization an education upwards. 

But if a man loves his wife and children, his 
father and mother, an invalid sister, or a disabled 
brother, well enough to go to work and endure the 
hardships of toil and privation himself, rather than 
that they should suffer and want, he has taken the 
step that develops all of nobleness and manhood 
that is in him, and leads to all of civilization, en- 
lightenment and culture, of which his nature is 



POPULATION AND WEALTH. 109 

capable. Now begins self-control and the develop- 
ment of strength, the subordination of the lower, 
animal appetites to the higher affections. The in- 
stitution of property, the idea of law, a sense of 
duty and moral obligation, all follow from the one 
first step in this direction. And as the lowest 
savagery cannot be found or attained, except in a 
dense population under degrading influences, so, on 
the other hand, the highest civilization cannot be 
reached except where the population is somewhat 
dense. 

82. Ntifnbers necessary to the use of the forces of 

nature. 

We have seen that wealth is the product of labor 
guiding the forces of nature bestowed on the things 
of nature. The labor is performed by man, and 
men are divided primarily with reference to this 
labor, into three classes — producers, manufacturers, 
and traders. Each of these classes however must 
be still farther divided, in order to secure any very 
great efficiency, and may be subdivided many times, 
with increase of efficiency at each step, for the pro- 
duction of value. 

This subdivision requires not only some consider- 
able numbers, but also both division of labor and 
exchange between the different laborers of the dif- 
ferent classes. 



no POLITICAL ECONOMY. 

Hence, before proceeding any farther with our 
general subject, we will consider population, or, 
rather, the number and density of a population in 
reference to the increase of wealth. 

8j. Origin and use of capital. 

Labor is constantly yielding products having ex- 
changeable value. Part of these products are 
designed and used for ultimate consumption, part of 
them are designed to be used in the production of 
other articles of value, and these articles are consid- 
ered as capital. 

Capital is sometimes called fixed capital, as lands, 
houses, etc., in distinction from moveable capital, 
money, etc. 

Capital may be referred to three different heads 
according to the use that is to be made of it. (i) 
The material that is "worked up" as iron, wool; 
cotton, etc., which reappears with increased intrinsic 
value. (2) Tools and machinery by which the 
products are made, and which are partly worn out 
in the process. (3) (a) The materials consumed in 
running the machinery, including coal, oil, etc., and 
(p) the clothing and food of the laborer. 

c?^. Capital represents only labor. 

All of these, however, are, as far as any exchange- 



POPULATION AND WEALTH. in 

able value is concerned, the products of human 
labor. The material before labor was expended on 
it has only intrinsic value, and the forces of Nature 
were gratuitous. 

Hence we find nothing in the nature and use of 
capital to call for a modification of the statement 
already made, namely, that labor is the only reaj 
constituent of exchangeable value. Labor, and 
labor alone, creates and determines that value. 
Even the capital used in any operation or process 
of manufacture or trade is but the product of labor, 
and represents a number of days' labor which can 
always and easily be determined by its value, or in 
other words, its value is determined by the amount 
of labor it represents. Or, to be more exact in our 
statement, its value in the market and as denoted by 
the current average price, is precisely the cost or 
worth in money of the labor that will be required to 
reproduce the capital. Not, indeed, the simple labor 
performed without machinery, but the labor per- 
formed, and the labor that was represented in that 
portion of the machinery that was worn out in the 
operation. The laborer puts in present exertion, 
the capitalist puts in labor that has been performed 
in days, perhaps in years, gone by. 

8^, The first effect of an improvement. 

The first and immediate effect of any improve- 



112 POLITICAL ECONOMY. 

ment in machinery, or in utilizing any new force of 
nature, is usually seen in an improvement in the 
quality — the intrinsic value of what is produced — 
rather than in any reduction of the cost to the con- 
sumer. 

And so long as the improvement in the machinery, 
etc., remains in the sole possession and use of the 
discoverer, or inventor, it is in fact a monopoly and 
inures to his benefit alone, enabling him to produce 
commodities cheaper than others, while selling them 
at the same price. 

86. The second effect. 

But the moment the use is thrown open to the 
public, it will, by the law of competition hereafter 
to be explained, bring down the price or exchange- 
able value of the article thus produced to the extent 
of the saving of human labor by the improvement 
in the means of reproduction. And then, as an in- 
direct and remote consequence, it will bring down in 
some measure the price of all other commodities 
whatsoever, that are in any way, or to any extent, 
products of human labor. 

Let us see in detail how this works. Suppose a 
hundred men are engaged daily in furnishing a cer- 
tain kind of cloth for a certain town. One of them 
invents a machine by which ten men can do the 



POPULATION AND WEALTH. 113 

work, and five of them can make the machines 
and keep them in repair; thus the labor of the 
eighty-five men is actually saved to that commodity. 

This is the doctrine usually taught But I think 
we often mistake in reference to it It doubtless 
takes more men to make and keep in repair the ma- 
chinery that ten men will use, while using the more 
complicated machinery of any advanced stage of 
manufacturing industry, than it would to supply 
them with the mere tools of the earlier and simpler 
form of labor. But this is not a fair comparison. 
We should compare the number of men required to 
make and keep in repair this complicated machinery, 
with the number that v/ould be required to perform 
the same office for — not the ten only, but all those 
— perhaps the hundred of laborers that would be 
required to do as much work and to do it as well, 
with tools and implements such as were in use 
at the time when the machinery was invented. 
From this point of view, and it seems to me to be 
the true one, it is doubtful whether there is really a 
larger proportion of persons now engaged in making 
the machinery in use than would have been required 
in making tools for the much poorer work, which is 
the best that could have been done, without the ma- 
chinery. 

Now note the consequences of the introduction 
and use of the machinery upon prices, (i) The 
8 



114 POLITICAL ECONOMY, 

eighty-five men will be thrown out of employmenfj, 
but they will soon — and not without inconvenience 
and loss to themselves^ doubtless^ — find employment 
elsev/here, most of them in agriculture, some in 
other forms of manufacture, and perhaps one or two 
in trade. (2) The price of that kind of cloth will 
decline to nearly the same extent of the saving in 
the amount of human labor used in making it. 
Not, indeed, eighty-five per cent, of the entire cost^ 
for the improvement spoken of will make no differ- 
ence with the cost of raising the raw material and 
of transportation to the manufacturer, or with many 
of the other items of the cost of the commodity to 
the consumer. (3) This kind of cloth, being made 
cheaper, will be in greater demand ; many persons 
that did not and could not afford to buy it before^ 
will now be able to do so ; the increased demand 
will prepare the way for further use of machinery^ 
and a more complete division of labor, whereby the 
commodities will be further reduced in price. 

And what is thus true of one article is true of 
every other, and of every step and stage of produc- 
ing or manufacturing it ; the law applies as well to 
the use of machinery in agricultural employments, 
as in manufacturing. But with this very important' 
difference, however, that machinery can never be 
applied to the same extent in diminishing human 
labor in agriculture as in manufactures : the order 



POPULATION AND WEALTH. 115 

IS as follows ; most of all in trade and transporta- 
tion, next in manufactures, least of all in farming. 

8j, The ways in which density of population 
affects wealth. 

Nor does it really make much difference to the 
wealth of the world where this new labor is per- 
formed. Every new article or commodity that is 
produced anywhere, in excess of the wants of the 
producer for immediate consumption, goes into the 
wealth and commerce of the world. Like water 
poured into the ocean, it may be but very little and 
not affect the level of its surface to dMy perceptible 
extent, but it increases the amount of water in the 
ocean, nevertheless. And as prices fall with the in- 
crease of supply, so the general effect on prices will 
be the same wherever the addition may be. Of 
course the effect will be felt ffrst at the place of pro- 
duction, but like a wave of the ocean raised by the 
falling of a rain-drop, the wave soon subsides and 
disappears and yet the surface is raised none the less. 
The men who raise cotton in Alabama, and those 
who make cheese in Holland, may not ever make 
any bargains with each other ; may never in fact 
even see each other in person ; and yet so long as 
the cotton- growers in Alabama, or anybody else 
anywhere, wants cheese, and the cheese-maker, or 



ii6 POLITICAL ECONOMY. 

anybody else in the world, wants cotton goods to 
wear, the effect upon the wealth of the world is the 
same as though they were neighbors and bought 
and sold directly of each other. 

But in order to realize any of these advantages it 
is necessary to have a large market and a somewhat 
dense population. 

As furnishing another illustration of the impor- 
tance of a large population, consider another case. 
We will suppose then that the stereotype plates for 
this book cost three hundred dollars, and the paper, 
press-work, etc., costs seventy-five cents for each 
copy. If now the publisher can sell only one 
hundred copies^ they will cost him three dollars and 
seventy-five cents a piece. And if he must sell 
them at one dollar and fifty cents a copy, he is a 
loser to the extent of two dollars and twenty- five 
cents a copy. But if he makes one thousand copies, 
they cost him one thousand and fifty dollars, and if 
he sells at one dollar and fifty cents as before, he just 
gets back his money. In the same w^ay ten thou- 
sand copies will cost eight thousand and eight hun- 
dred dollars, and sell for fifteen thousand dollars, 
and at a profit of about six thousand dollars. 

But the possibiHty of anything of this kind de- 
pends upon a large market, or a large population 
among whom the commodity may be sold. 

Again, the Appletons are getting up an American 



POPULATION AND WEALTH. 117 

Cyclopedia in sixteen volumes. I am told it will 
cost them three hundred thousand dollars to get it 
out If, now, they sell but one thousand copies, it 
will cost them three hundred dollars each, and they 
sell it for eighty dollars. Of course, therefore, they 
must be able to sell many thousand copies before 
they can get their money back and begin to make 
anything. But this, of course, can not be done 
except in a country with a large and thriving popu- 
lation. 

There are five distinct causes affecting the ratio of 
increase in wealth, which are dependent upon the 
density of population: (i) division of labor, (2) 
saving in the cost of exchanges, (3) stimulation of 
new wants, (4) the production of new commodities, 
(5) the larger proportion of the population that can 
be devoted to agriculture, the more dense the popu- 
lation. 

88. I. Division of labor. 

Division of labor can not be carried to any great 
extent without a utilization of the forces of nature, 
and an accumulation of people that make that utili- 
zation possible. But as soon as these conditions are 
possible, it will begin with any people that are 
capable of civilization. 

Even in the savage state there will be something 



ii8 POLITICAL ECONOMY. 

of it. The woman bears and rears the children, the 
man does the fighting and hunting. Soon, too^, 
some, from taste and especial skill, will begin ta 
make the hatchets and spears, bows and arrows, etc.y 
while others less expert at these mechanical labors 
will do the hunting, and exchange the products of 
their labor for those of the manufacturer of the im- 
plements he wants to use. Or again, the children 
and the old men, the sick and the lame, who can 
not go to war, or do much at hunting, may be able 
to do much at manufacturing the things that are 
needed by the hunter. And thus the division of 
labor begins as soon, in fact, as there are more than 
two persons living in society with each other. 
Society would be impossible without it. 

8g. (i) Saving of capital. 

The advantages are, if one man makes shoes only, 
for example, he needs only a set of shoemaker's 
tools ; but if he makes shoes at one time, and cabi- 
net ware at another, he will need a set of cabinet 
tools as well ; and thus will require as much capital 
as two men pursuing the two branches of business, 
each of them pursuing one branch exclusively. 

Tools are always of the nature of capital, and the 
more of them any man has, the larger the amount 
of his gross receipts that must be taken from his 



POPULATION AND WEALTH. 119 

capital, in the shape of rent and interest, and hence 
the less, by just so much, will be the amount left as 
the wages of his labor, or his profits on the business 
he is doing. 

go. (2) Increased knowledge of materials. 

An increased skill and knowledge of the materials 
Avorked upon, and the processes of working them. 
Some writers hav^ made this two items. 

No man can know more than one or two things 
thoroughly well. And in all departments of knowl- 
edge much remains to be learned. By giving him- 
self entirely to one department, as agriculture, the 
working of iron, of wool, of cotton, etc., any man 
is more likely to make discoveries and add to the 
amount of knowledge already obtained, than he is 
if he scatter his thoughts over a larger field of in- 
quiry. 

gi. (j) Increased skill and dexterity. 

There is always an increased dexterity, or strength 
of particular muscles, acquired by devotion to one 
kind of work, a strength that would be impossible 
without such exclusive devotion. 

Any person who has acquired the habit of play- 
ing on a musical instrumciit, is an example of this, 



I20 POLITICAL ECONOMY. 

and the type-setter is another. There are also cases'^ 
of uncommon muscular strength,, which result from 
the habitual and almost exclusive use of certain 
muscles in one particular way. The acquisition of 
this dexterity^ or strength,, or both, requires concen- 
tration of effort to one kind of employment 



g2. (4.) Adaptation of natural abilities. 

The adaptation of the diversities of capacities tc 
different kinds of labor. 

There is scarcely any physical infirmity which 
does not leave the sufferer as capable of some kind 
of work, as if he were perfectly whole. A blind 
man can turn a grind- stone, and a deaf man can 
set type. A man with defective feet can make 
shoes, clothes, etc. 

And so, too, of mental capacity ; the best archi- 
tect the world has ever seen, could do no more and 
no better at making mortar or carrying brick, than 
the common laborer, who could do nothing but 
make mortar and carry brick ; the best of generals 
would be no better as a private in the ranks, than 
scores of men that may be found in any brigade, 
who, however, are fit for nothing but the ranks. 

93' (5) Saving the time of others. 

In a case already spoken of, as in that of the mail- 



POPULATION AND WEALTH. 121 

carrier, one man can do all of that kind of work 
that is needed, for some hundreds of others, just as 
well and as easily, as he, or any other, could do it, 
each one acting for himself alone. He thus saves 
for them time — and time is an element — one factor 
of labor, and thus time is money. 

We have another, and perhaps a better illustra- 
tion of this principle, in the manufacture of books 
and newspapers. One compositor, for example, sets 
the type. This he can do as easily and as quickly 
if there are hundreds of thousands of copies to be 
printed from them, as if there is to be only one. 
If any man had to set the type for all the books and 
papers he reads, there would be an end to literature. 
But in order that we may get all the advantage 
from this element of the benefits of the division of 
labor, there must be a large population to be sup- 
plied. 

g^. Division of labor implies co-operation. 

This example is instructive in another way, as il- 
lustrating the effect of the division of labor on in- 
creased production. I buy a paper, we will say at 
four cents a copy. Labor on an average is worth 
two dollars per day. I pay thus four two one- 
dredths or one fiftieth of a day's wages for the paper. 
Now by a process which I shall make plain and in- 



122 POLITICAL ECONOMY. 

disputable bye-and-bye, we know that that paper 
has taken only one-fiftieth of a day's work to make 
it, or in other words, it has really taken but part of 
a day to make it in, or has virtually occupied in all 
one man only about one- fifth of a day, or on the 
supposition of working ten hours per day, about 
twelve minutes of the time of one man per day, in 
its manufacture, including raising the material, mak- 
ing the paper, the type, the ink, writing the matter, 
setting the type, etc., etc., all included. 

And the difference between this twelve minutes, 
and the days and years that it would have taken one 
man to do the whole, is the result of the division of 
labor. 

Division of labor always implies co-operation as 
well. In fact it enables all persons in a community 
to co-operate, each as best he can, in the production 
of values. And in many cases co-operation is in- 
dispensable ; two or three men together, can do, 
what no number of men, each working separately 
by himself, could possibly accomplish ; this is, in fact, 
the case to some extent with all the great works of 
a civilized community ; ten men together are more 
than ten times that number separately. 

p5. Limits to the division of labor. 

There are but two limits, ordinarily at least, to 



POPULATION AND WEALTH. 123 

the division of labor and co-operation, with increased 
efficiency at each successive step in the subdivision. 

(i) Where the labor involved in passing the com- 
modity from one laborer to another, is greater than 
that which is saved by the operation of the above 
causes, and more especially the first named, there 
is no gain, but rather a loss by subdivision. 

Thus, in a cabinet shop, one man might do only 
the sawing, one might use only the jack-plane, a 
third do nothing but apply a try-square. Now it is 
manifest, that in such cases there would be more loss 
of time by the constant transfer from one laborer to 
another, than could be gained by any of the ad- 
vantages of the division of labor. 

(2) A limit to the demand for the articles pro- 
duced. This depends upon the want of a popula- 
tion large enough in numbers, and able in wealth, to 
procure the commodity. 

Thus, suppose that in a pin factory, it were found 
desirable to divide the work into six branches, with 
one hand each at three, two at two others, and 
three at the other. If now there were not market 
or demand for so many pins as these ten men, thus 
distributed, could make, division of labor could not 
be carried to that extent without loss. 

But for the manufacture of articles requiring the 
most machinery and largest amount of the forces of 
nature, a dense population is necessary to create a 



124 POLITICAL ECONOMY, 

market sufficient to allow of the maximum of ad- 
vantage from the division of labor. And these arti- 
cles are the very ones which are produced in, and 
characteristic of, the highest and most advanced 
forms of civilization, and the greatest amount of 
distributive wealth. 

It may be that many of these articles are merely 
matters of fancy and taste. But the law just stated 
holds as good of many of the most useful articles as 
it does in regard to those of mere luxury ; the manu- 
facture of cotton and woolen cloths is an example. 
A large market is as necessary for the best effects of 
the division of labor in the manufacture of them, as 
in the polishing of diamonds and the manufacture 
of jewelry. 

And it is in the highest forms of manufacture, the 
manufacture of the finest and most expensive goods, 
that machinery and the forces of nature may be 
made to do the largest share of man's work ; and it 
is in these, therefore, that man's work becomes the 
most effective in producing value. And we have 
this general law ; the greater the difference between 
the intrinsic value of the raw material and that of 
the finished product, the more does man's labor, day 
by day, increase that value. 

It may be that we ought to add one or two more 
items to our list of the Hmits to the division of labor, 
resulting rather, perhaps, from the accumulation of 



POPULATION AND WEALTH. 



125 



business in one establishment to which the division 
of labor and the use of machinery leads, than from 
the division of labor itself In any large establish- 
ment with much machinery and most complete 
division of labor, the business itself often becomes 
so complicated and multifarious that it is beyond the 
powers of any one man to give it the attention req- 
uisite to the highest rate of profit In this way we 
may have one counteracting influence to the princi- 
ples laid down. 

Again, there may be such an increase of ** waste" 
in a large establishment as to make it uneconomical. 
For this reason, or for some other, it seems to be 
the case that very large hotels and boarding-houses 
cannot board so cheap, and make a profit, as those 
that are smaller, and accommodate only a smaller 
number of guests. 

g6. II. Saving in the cost of exchanges. 

The second cause conducing to the increase of the 
distributive wealth, depending also directly on the 
density of the population, is found in the increased 
facility and diminished labor with which the neces- 
sary exchanges are made. 

Of course there can be no division of labor where 
no exchanges are made. It is the case in fact, for 
the most part, that those who manufacture most of 



126 POLITICAL ECONOMY. 

the articles that are in demand in every civilized 
country, never use any of the articles they make ; 
the man who makes only shoes, for example, wears 
no more than the man who makes none ; the man 
who makes plows may, in fact, never use so much 
as one of them, or turn a single furrow. Hence, 
without the possibility of exchange, there can be no 
division of labor. i 

Under this head then there are four particulars. 

P7. (i) Saving in labor and trouble. 

The distributive wealth remaining the same, the 
labor and trouble necessary to make the exchanges 
will be constant, whatever may be the increase or 
the decrease of the population, so that the labor of 
making exchanges, provided the distributive wealth 
remains the same, will be the same, whatever may 
be the aggregate wealth : and as great when the 
population is but one to the square mile as when it 
is five hundred times that number. And then it will 
be only one five-hundreth part as much for each 
person, and will therefore take only one five-hun- 
dredth part as much of his income in the one case 
as in the other. 

Thus, suppose we have living along a certain road 
persons at an equal distance of one mile apart, the 
exchanges between them would be in proportion to 



POPULATION AND WEALTH. 127 

their distributive share of the wealth of the com- 
munity. Now suppose another man should settle 
between each of the first, with just the same amount 
of wealth as they had before, but by the intervening 
settlements there would be only half the distance to 
convey it, and, therefore, the labor of carrying it 
would be just the same as before — twice as much 
for half the distance. 

And so with any increase to the density of the 
population. And if, as will certainly be the case, 
there should be any increase of the distributive 
wealth, there will be a larger amount of exchange 
indeed ; but the labor of the exchange will increase 
with the distributive wealth, only less rapidly, and 
not at all with the number of inhabitants living on 
a given territory. 

g8. (2) Saving in the cost of roads. 

But this is not all ; there must be not only the 
labor of making the exchanges, there must also be 
the labor and expense of making the roads over 
which the travel can take place. 

The road between two points is, we will say, ten 
miles. If now there are but ten inhabitants living 
on that road, each one must make and keep in re- 
pair a mile of road. But let them increase to twenty, 
and each one will have but half a mile to provide 
for, and so on. 



128 POLITICAL ECONOMY, 

But they will not live all scattered along on the 
line of the road ; they will settle in neighborhoods 
and villages, with many roads crossing each other ; 
so that each inhabitant gains by a similar saving on 
both the roads, the two that cross each other at or 
near his dwelling. Hence a gain more rapid than 
the former statement would imply. Smith, in his 
"Elements," maintains that the saving will increase 
with the square of the rate of increase of population. 
But I am unable to see how it is going to increase 
any faster than the rate of increase in the density 
of the population. 

Sometimes the more dense the population, the 
better the roads, until we get to the best pavements 
that can be made in a most populous city, and this 
will of course cost more than the plain inexpensive 
roads that answer all the purposes of a rural popula- 
ation ; that is, will cost more per mile, and there 
will be more miles of it. And this is a deduction, a 
quantity to be deducted from the rate of decrease 
in the cost of exchange that comes from the increas- 
ing density of population. And of course the time 
v\^ill come when canals and railroads are needed and 
will be biiilt ; but this will make no difference with 
the law just stated. 

99' (3) ^^"'^ii'ig ii^ teams, etc. 
Then, too, there is always a certain amount of 



POPULATION AND WEALTH. 129 

capital needed in the shape of teams, wagons, canal 
boats, ships, cars, etc., etc. But these are all only 
tools, and machines, and can not be used at all with- 
out some population, and can not be used to the 
best advantage, and with a maximum rate of reduc- 
tion of the cost of transportation, except when there 
is a very dense population, a population more dense 
than is to be found now^ in any country on the face 
of the earth. 

Thus, it costs so much per mile to build the road, 
and furnish it with rolling-stock. The road and stock 
thus provided, will do the work for ten thousand, or 
perhaps for fifty thousand people, as well as for one 
thousand, and would cost but very little more to 
supply one number than the other. And when the 
population, its travel and its traffic, becomes such as 
to need a double track, it does not cost nearly 
as much to double its power of work as it did to 
build it at first 

100, (/]-) The saving by living in villages. 

But in the next place, with any considerable 
density of population, we have the people, especially 
the manufacturers and traders, gathering into vil- 
lages, and thus the distance and the cost of ex- 
change, as depending upon distance, for them will 
be greatly reduced, almost totally saved. , 
9 _ 



I30 POLITICAL ECONOMY. 

And in regard to the farmers themselves, I think 
there will be a saving of a similar kind, though 
probably not so great. The farmer with a village 
near by, goes there and makes all, or nearly all, the 
exchanges he may have occasion for; finds there, 
within a very narrow compass, all those of whom 
he wishes to buy, as well as all of those to whom he 
wishes to sell, 

J 01. III. Increased stimulus to production. 

Then in the third place we have a stimulus to the 
wants, and so to the industry and exertion, that did 
not before exist ; better clothing, better houses, more 
extensive and expensive equipages are in demand^ 
and more labor per head will actually be performed 
on account of this stimulus, than there would have 
been if no such centre had been created. 

Savages have but few wants ; the development and 
culture that comes from any advance in civilization, 
always creates or develops new wants. And every 
increase in distributive wealth, has the same effect. 
We have spoken of the necessaries, the comforts, 
the luxuries of life. But the comforts are always be- 
coming necessaries, and what was, in one state of 
wealth or culture, regarded as only a luxury, comes 
in the next to be regarded as only a convenience, 
or perhaps as a necessity. 



POPULATION AND WEALTH. 131 

• This, however, is nothing to our present purpose. 
They are wants, and do stimulate to labor and the 
creation of value. 

Nor does the mere advance in civilization bring 
this result only. By bringing people much into 
society, so that they see much of each other, they 
iearn wants of one another. A spirit of rivalry 
springs up which is also an immense stimulus to 
exertion. 

102, IV, Articles come to have new values. 

The production of articles hitherto of no value, is 
to be reckoned as the fourth way in which a density 
of population gives greater facility for the produc- 
tion of wealth. 

Many articles will now be raised by the farmer 
and gardener, in the immediate neighborhood, that 
were either not raised, or were worthless before. 
And articles of this kind often become very profit- 
able to the producer. 

Now it so happens, that most of those articles that 
are the most productive in value, most remunerative 
to labor, are those which will bear but the smallest 
amount of transportation, especially in a country 
where the wealth and population have not increased 
so as to produce railroads, etc. Of this kind, are 
milk, eggs, green garden-vegetables, etc. 



132 POLITICAL ECONOMY. 

Hence we should naturally Infer that the greater 
the population of the globe or of any particular 
community^ the greater the distributive wealth, or 
in other words, that wealth will increase more rapidly 
than population. 

loj. V, Increase in the proportion of agricultural 

population. 

The more dense the population the greater the 
proportion of them that can devote themselves to^ 
producing the raw material Of this it is to be con- 
fessed that we do not see much yet On the con- 
trary, the whole tendency at present is to avoid 
farming, and rush into what is called "business" or 
the "professions." 

But we have seen that both the division of labor^ 
and the use of machinery can do far more in the 
direction of saving human labor, by enabling a few 
to do that for which many were required before, in 
the departments of manufactures and trade, than 
they can possibly do in that of agriculture. 

Doubtless, as already said, the first effect of this 
will be an improvement in the quality of what is 
manufactured. But in time the improvement in 
this direction will have reached its limit. And then 
the persons "thrown out of employment" as the 
expression is, by machinery, railroads, etc., etc.j, 



POPULATION AND WEALTH. 133 

will go to agriculture, and by increasing the number 
of persons so employed they will increase the quan- 
tum-factor of wealth far above what it could pos- 
sibly be if the proportion of agriculturists to manu- 
facturers and traders had remained what it was when 
the population was less dense and numerous. 

Hence, other things being equal, the greater the 
density of the population in any community, the 
greater will be the aggregate wealth of that com- 
munity. 

104^ Modifying considerations. 

The qualifying words, "other things being equal," 
are important to be observed. As a general thing 
a community in which the people are mostly agri- 
cultural is quite poor, for the reason that but little 
manufacturing is done, and few if any manu- 
factured articles are brought to the highest stage of 
perfection or their greatest value. But even in this 
case, the more there are of them, the more they 
produce. 

Again, another change may affect the proposition. 
Suppose that in any given community, better tools 
and improved machinery, or more skillful processes 
should be introduced, so that lifty men could do as 
much as one hundred could do before. This 
country would be at least as rich, though a much 



134 POLITICAL ECOISTOMY. 

less proportion of its inhabitants were engaged in 
agricultural pursuits ; and of course nothing would 
be gained by any policy that should increase the 
agricultural part of the community, by a disuse of 
tools and a return to the more primitive implements 
and methods of culture. 

It will indeed result from what has been said in a 
preceding chapter (chap. Ill) that the smaller the 
number of persons engaged in the two branches of 
human industry, manufactures and trade, provided 
these two kinds of labor are performed up to the 
point of their maximum of efficiency in adding to 
wealth, the better for that community. They add 
to the number by which the aggregate wealth is to 
be divided, in order to determine the distributive 
wealth. Hence the fewer the better. But any in- 
crease of the agricultural laborers, so long as there 
is (i) either land to be cultivated, or (2) no lack of 
means to carry the raw material to the highest state 
of manufacture^ is by so much, an addition to the 
first factor of wealth, namely, the quantity of that 
which has value, and constitutes wealth. Hence, 
the more of them the better. But as this last con- 
dition can hardly occur in a civilized country, the 
former is practically the only Hmit to the profitable 
increase in the proportion of agricultural laborers. 

And even when there is no more land that can be 
brought into cultivation, more labor may usually be 



POPULATION AND WEALTH. 135 

employed with increase of products on that which 
is already well cultivated. 

io§. Waste in relation to the increase of wealth. 

But along with all these causes that tend to in- 
crease the ratio of the distributive wealth to popula- 
tion, there is one very important cause that tends in 
the other direction, and that is '^wasteJ' 

Of this there is always some, and the amount in- 
creases with increasing wealth, and density of pop- 
ulation, in two ways. 

(i) Persons with accumulated wealth will live in 
idleness or pleasure, consuming much and produc- 
ing nothing. What they consume is a "waste." 

(2) There will always be, in a wealthy community 
at least, much expenditure over all the needs of 
thrift, wealth, comfort or culture. 

The man who builds a house at a cost of five 
thousand dollars and then burns it to ashes, gives 
employment to laborers, indeed, and distributes that 
amount of money among them. But he does no 
good to the community ; while, if he had allowed 
the house to remain, and be used for a family 
home, the community would have had the double 
benefit (i) of the money paid to laborers for their 
labor, and (2) the house produced by their labor. 

Now, in this way, every man who spends on any- 



136 POLITICAL ECONOMY. 

thing more than is needed, wastes whatever there 
may be of excess between the two limits, needs and 
expenditures. The man, for example, who pays, 
fifty dollars for a coat^ when one that could be made 
for thirty would answer just as well, throws away 
and wastes the twenty dollars as completely as the 
man whom we have just supposed building a house 
and then burning it to ashes. 

It is indeed true that the money goes into the 
circulation^ but it might as well be paid for no labor 
or thrown into the sea, so far as the welfare of the 
community and its distributive wealth are con- 
cerned. 

With every increase of wealth and population,, 
there will be an increase of ^^ waste,'' which will of 
course operate to diminish the rate of increase to 
the increment of distributive wealth, 

. As an example of this waste, I will mention the 
fact, that it is computed that about one-tv/entieth or 
five per cent of all the labor spent in agriculture, is 
devoted to raising the simple article of tobacco. 
Perhaps another commodity consumes another as 
large a per cent, I mean stimulants in the shape of 
alcoholic and fermented liquors, opium, etc. And 
there can be but little doubt that of this one branch 
of human labor, ninety-nine one-hundredths are 
waste. One per cent, of it would produce all of 
those commodities for which mankind is in any way 
the better off. 



POPULATION AND WEALTH. 137 

Or again : it was reported a few years ago from 
the Agricultural Bureau at Washington, that it had 
been concluded as the result of a careful estimation, 
that the cost of keeping the number of dogs actually 
kept in the United States, amounted to over thirty 
millions of dollars annually. I think this an instance 
of very great waste, for I do not believe that all the 
skins of all the dogs in the country would be worth 
at the very highest possible estimate, over the half 
of one million of dollars. 

It is not my design, or my wish, in these remarks 
to inculcate any mere Gradgrind utilitarianism, or in- 
sinuate the doctrine that all that men really need is 
food and clothing, and the plainer and cheaper the 
better. On the contrary, I believe that that which 
is spent, if properly spent, for social, intellectual, and 
moral culture, and for the refinement of the taste, is 
among the very best and most proper expenditures 
we can make. I think that manhood and woman- 
hood, strong and noble manhood, and gentle and 
graceful womanhood, are the very best and most 
valuable commodities society can produce ; the very 
best things for which labor and money can be spent. 
I am speaking only of those expenditures and out- 
lays which consume and dissipate revenue, without 
accomplishing any of those objects. It makes no- 
body better, nobody really happier, or more highly 
cultivated. But it is an immense drain upon the 



138 POLITICAL ECONOMY. 

income and resources of many of the most advanced 
nations of the earth. 

106. Unproductive capital. 

For this reason many writers, and among them 
John Stuart Mill, are inclined to speak of capital as 
not the same as distributive or aggregate wealth. 

He regards capital as only that portion of the 
wealth which they that hold it are inclined to use in 
aid of labor to be employed in reproduction. And 
it is this "capital," or wealth in this sense, that, as 
he says, increases less rapidly than population, so 
that in all the old countries of the world there are 
more laborers than are wanted. This may be a fact. 
It certainly seems to be the case in England. But 
this will depend upon the ratio of what I call 
'^ waste,'' to that which he calls "capital." 

We have seen that, beyond all question, the rate 
of increase of the products of labor in England, is 
greater than the rate of increase in population. If 
their political institutions and social notions are such 
as to necessitate or allow of the increase of that por- 
tion of the annual increment of wealth, which goes 
to '^ waste'' at such a rate as to lower the increment 
of "capital," in Mill's sense of the word, the result 
he speaks of may ensue. But who is to blame for 
it, God or man ? 



POPULATION AND WEALTH. 139 

If a comparatively few owning all the land, and 
monopolizing the increase of wealth, choose to 
spend it in waste, to employ or not, as they please, 
their fellow countrymen, to shut them off from every 
foot of land, exclude them from the mines, and turn 
them out of the factories in the exercise of their 
right of ownership, it is certainly true as Mill holds, 
that it is the amount of "capital" (not wealth) that 
determines the amount of labor that can be per- 
formed, and the number of laborers that can be 
employed. And of course, therefore, there may be 
an excess of laborers, not an excess, indeed, when 
compared with the laws of nature, but only an ex- 
cess when compared with the pleasure of the British 
aristocracy. Of course the effects of this kind of 
waste are much the same everywhere, wherever 
they occur, whether in London, Paris, or New York. 

loy. Moral influence of having the producer and 
consumer near together. 

There is also a moral influence arising from bring- 
ing the producer and consumer together, by in- 
creasing density of population, which it is worth 
while to notice in passing. When population is 
dense, and the consumer and producer are neighbors 
and each acquainted with the other, there is an ob- 
ligation, not to say a motive, to honesty, which does 



I40 POLITICAL ECONOMY. 

not exist where they are unknown to each other. 
The producer of shoes, for example, who is at work 
in a village on the Atlantic coast, making shoes for 
the people in the valley of the Mississippi, or still 
further off, knows nothing of the people who are to 
wear them, and probably cares little or nothing 
about them. His object is to make as much money 
out of them as he can. Hence the temptation to 
cheat. 

But if his ware is to be used by his neighbors, 
who know him, who buy of him, and of whom he 
buys in turn, he is bound to honesty and good con- 
duct. For this reason it is, that whenever we go 
into a shoe-store, or a clothing-store, we expect to 
pay, and are willing to pay more for an article of 
domestic manufacture, one made by the man of 
whom we buy it, than we will pay for what are 
called "sale shoes," "sale clothes," etc., knowing full 
well that they are often made to sell, rather than to 
wear. 



CHAPTER VI. 

OF RENT AND WAGES. 

Wealth the product of three elements — English use of rent, wages, 
and profit — Effects on Political Economy — Really but two 
parties — Capitalists and laborers — Their necessity to each other 
— Rent, wages, and profit — The contract between the parties — 
The law of supply and demand — The law of competition — The 
effect of these laws on prices — May not act instantaneously — 
The force of habit on prices — The law of supply and demand 
will produce a supply — Will distribute laborers to their various 
callings^Will regulate wages among the different employments 
— Time a factor of wages — Time also a factor in rent — The 
result reached by another process — Every laborer wants all he 
can get — The higher wages of skilled labor — Exceptions to the 
law — Effect of constancy of occupation — Second law determin- 
ing the rate of wages — Average cost of reproduction will not 
explain them — In what sense wages equal in all departments — ■ 
This just as well as necessary — Different rates of rent — Relation 
of rent to interest — Rate of interest decreases with increase of 
capital — Depends rather on value than amount — Important law 
of distribution — Capitalists cannot defeat this law — Equality 
between rent and wages — The same result reached in another 
way — Causes that retard the operation of the law — Predom- 
inance of labor. 

We have thus far considered the nature and the 
production of wealth. 



142 POLITICAL ECONOMY. 

1 08. Wealth the prodtict of three elements. 

We have seen that into the production of wealth 
there enters, (i) the forces and materials of nature, 
(2) capital used as tools and machinery, (3) labor. 

Of these three, the first adds no element to the 
exchangeable value, or to the cost of the articles to 
the consumer : the second, capital, in so far as it has 
exchangeable value or cost, is a product of labor, 
and may always be resolved into an equivalent of 
labor. 

In most or all the countries of the old world, 
there are three classes of persons, (i) laborers who 
own nothing, and are expected to do all the manual 
labor, or "the work," as it it is called in the more 
popular use of language : (2) the aristocracy who 
own the land and most of the fixed capital, and who 
are expected to do nothing : and, (3) the middlemen, 
sometimes called with reference to English usage, 
*' farmers," who own all the movable capital — the 
money, etc., that is to be used in reproduction — and 
who are expected to do nothing more than hire the 
laborers, and look after the general management of 
the industrial pursuits. 

log. Ejiglish use of rent, wages, and profit. 

Hence, of course, there are always three parties 



RENT AND WAGES. 143 

to be considered, and three rival claims to be ad- 
justed in any theory for the distribution of the 
products of labor and capital. In such a constitution 
of society these three parts are called, (i) wages, or 
the portion that goes to the laborers, (2) rent, that 
portion that goes to the capitalist, (3) profit, or the 
part that goes to the middleman or farmer. 

The fundamental fact in such a state of society is 
a landed aristocracy, a class of men, usually but few 
in number in comparison, who own all the land, and 
who, in consequence of their proprietary rights, can 
give employment or shut out from employment, as 
it suits their convenience or their caprices, the la- 
borers of the land, and who, by possession of hered- 
itary political rights, or by the limitation of the right 
of suffrage, possess the power of making the laws 
and shaping the entire policy of the nation in their 
own interest. In many cases, and especially in 
England, this aristocracy have associated with them 
in interest and sympathy those, who, from among 
the commonalty, have arisen to the possession of 
great wealth, or to such an eminent influence as to 
be a desirable acquisition to their ranks. 

If now, this is to be regarded as the natural state 
of things, one that ought to be perpetuated, nothing 
better or different can be desired than some of the 
more recent of the British productions in the de- 
partment of Political Economy. First and foremost 



144 POLITICAL ECONOMY. 

amongst these is the work of John Stuart Mill. All 
his examples and illustrations are drawn from such 
a state of society. It presents nearly all the facts 
that he takes into consideration, and all of them that 
he seems to consider as normal and legitimate ; and 
all of his doctrines seem to have been shaped with 
a view to justify and perpetuate such a state of 
things, with of course some changes by way of im- 
provement in its workings and results. 

Hence, in his opinion, the consideration of utility 
and intrinsic value is of no account ; the distinction 
between price and exchangeable value of no further 
use than to give us two terms, where one would 
answer as well ; the price or value of an article is 
the measure and result of the difficulty of getting it, 
and not a compensation for the labor that has pro- 
duced it. Capital determines the amount of labor 
that will be done, since no man can labor without the 
aristocracy and the capital of the middlemen : and 
that there may be capital and profits so that the 
laborers can be kept supplied with labor, the rate of 
wages must be kept down. And the lower classes 
must be compelled to forego the comforts of home 
and domestic life, lest they become too numerous, 
and so a burden upon the capitalists. 

But surely this is not the state of society amongst 
us, nor the genius of our institutions. Here we 
have no "landed aristocracy," in the old-world sense 



RENT AND WAGES. 145 

of the word. We have but very few middlemen 
and no need of any. Nearly every capitalist per- 
forms some labor, and employs as many laborers as 
he can, if he chooses to do so ; and nearly every 
laborer owns some capital, and is welcome to all he 
can honestly acquire, and will use wisely and well. 
And the whole genius of our country and its institu- 
tions is to elevate the laborer, so that he may become 
a capitalist to the extent, at least, of owning all that 
he needs to use, and is essential to a self-respecting 
manhood and the management of his own affairs. 

Now without attempting, in this place, any com- 
parison of the relative merits of the two systems of 
nationality, or making any effort to vindicate our 
own, it is manifest that we must have a Political 
Economy which is, in practice at least, quite differ- 
ent in many respects from the English, 

Theoretically, doubtless, the principles of the sci- 
ence should be derived from facts and definitions that 
are irrespective of any special nationality, and de- 
signed rather to correct and improve those that are 
wrong, than to perpetuate any one as it is, unless it 
is just right as it is now. 

112, Capitalists ajid laborers. 

It is, however, customary to speak of the capital 
as owned by one person, and the labor as performed 
10 



146 POLITICAL ECONOMY, 

by another. This distinction is convenient for the 
sake of discussion, but it is not essential or impor- 
tant for any law or result. When the capital is 
owned by one man,, and the labor performed by 
another, some division of the products, some dis- 
tribution, of what are called the ''profits," must be 
made between them. Whereas, if the laborer owns 
his capital, he receives the whole income to himself. 
It is, however, vastly important to ascertain the law 
that determines the proportion that shall go to each. 
It is manifest that each party must have some 
portion. 

1 1 J. Their necessity to each other. 

The laborer,, if be be only a laborer ^ can not work 
without being indebted to some one else for capital 
Not only must he have tools — which he must borrow 
if he does not own them, (and if he does he is so 
far a capitalist) — but he must have something to 
work upon, a piece of ground to till, stone to ham- 
mer, lumber to work up, etc, etc., all of which are 
capital. Since all commodities that have passed 
from the farmer's and miner's hands have exchange- 
able value; and all land, for farming and mining 
purposes, has now come to be owned by somebody, 
and to have consequently a price and an exchange- 
able value, there is nothing now with which, or on 



RENT AND WAGES. . 147 

which, work can be done, that is, not owned by 
somebody. 

The capitalist can not eat what he has, or if he 
could he would soon exhaust his store and be with- 
out supplies. If he goes to work with it, he ceases, 
thereby, to be simply a capitalist. His true policy, 
therefore, is to rent his capital to some one who is 
■desirous of using it as a means of producing value ; 
and of course he will do so, only on condition that 
he can get a share of what is produced. 

11^ Rent, wages, and profit 

We call that portion of the increment of any 
operation that goes to the capitalist, when the amount 
is agreed upon before hand, and does not depend at 
all upon the amount of the increment, rent ; and 
the other part in this case, we call profit, or in case 
it is a minus quantity, loss. Hence if we let R 
denote rent, P profit, and / the increment, we have 

I=R-\-P 
and as R is in this case constant, we have 

dI=dP 
that is, the rate of profits is equal to the rate of the 
increment 

We call that portion that goes to the laborer, when 
it is agreed upon before hand, and does not depend 
upon the amount of increment, or the success or 



148 POLITICAL ECONOMY, 

failure of the enterprise, wages ; and the rest of the 
increment in this case, also, profit. 

Hence if we take W to denote wages, and use / 
and P as before, we have 

/= W-\- P 
and for the same reason as before 

dI=dP 

It is manifest that in the first of the two cases, the 
laborer takes all the risk, while the capitalist takes it 
in the latter case. 

But in some cases the laborer and capitalist pro- 
vide for a distribution of the increments, whether 
positive or negative — gain or loss — in some ratio, as 
half and half, one and two- thirds, etc., etc. In this 
case the formula is 

I=P, + P^ 
and of course the differential coefficients of Px and 
P2 will depend upon the nature of the contract be- 
tween the parties, and as we shall see, varies by 
pretty definite laws in different stages of the civiliza- 
tion. 

775. Tke contract between the parties. 

But the nature of the contract, whether it will be 
one in which the laborer works for wages, or hires 
the capital for rent, will depend, in each case, upon 
the estimate he puts upon his own capacities. If he 



RENT AND WAGES. 



149 



thinks that he can make as profit, more than he can 
get aa wages, he will hire the capital and pay rent 
for it If, on the other hand, he is distrustful of 
himself, and fears that for any reason his profits will 
be less than his wages, if he should hire himself out, 
he will work for such wages as he can get 

Hence, as a natural consequence, the more intel- 
ligent and skillful the laborer, the larger will be the 
portion seeking to work for themselves on capital of 
their own, or hired at a low rate of rent, and the 
more ignorant and unskillful, the larger will be the 
amount of capital accumulated in the hands of a 
few. 

116. The law of supply and demand. 

Before proceeding farther with our general subject, 
however, let us pause to consider two of the most 
important and fundamental of the laws of Political 
Economy, namely, the law of (i) supply and de- 
mand, and (2) the law, or rather the fact, of competi- 
tion. These are the two great laws that regulate 
prices. 

The law of supply and demand supposes people 
in anxious pursuit of wealth, and each one desirous 
of increasing his profits as fast as he can [honestly]. 

If, now, there are two m^en in a community, doing 
different kinds of business, and one sees that the 



I50 POLITICAL ECONOMY. 

other is making larger profits, and as a consequence^ 
getting rich faster than himself, he will probably 
quit the business he has been pursuing, and go into 
the same kind of business as his neighbor, and thus 
in general : 

When there is one kind of business at which men 
can make money faster than at others, men will quit 
the kinds in which they are either losing money, or 
making it less rapidly, and go into that in which 
they can make it fastest. To this there are certain 
exceptions, which we shall have occasion to notice 
below. 

The law of supply and demand is, therefore, that 
where there is a demand there will be a supply ; 
that is, where there is what is called a demand, the 
demand is in excess of the supply, the price is higher 
than the average cost of production, which will of 
course, therefore, induce people to go into an in- 
crease of production. 

iiy. The fact of competition. 

In intimate connection with this, is also the fact 
of competition ; the excess of supply can bring 
prices down only by what is called competition. 

So long as price is above the exchangeable value, 
the producers can afford to sell for less than they do ; 
that is, at the usual prices, they make more than the 



RENT AND WAGES. 151 

average rate of profit. In this state of tilings there 
are many considerations conspiring to induce them 
to offer to sell at lower prices. 

(i) As a general thing, a man wants to sell soon 
in order to get his money back, to be in readiness to 
be used again. Under this influence, he will offer 
to sell a little lower than others, in order to sell be- 
fore they do. 

In computing rates of profit, time enters, as well 
as increment and capital. We call the profit so 
much per cent., as six per cent But if a man can 
make a turn so as to get this six per cent, once in 
three months, he is manifestly making money faster 
than if he could make his turns only once in a year. 
Hence the disposition to sell as soon as may be. 

(2) When prices are high, there is always a danger 
of their falling, and most always they do fall, in fact, 
to a figure nearer the average cost of reproduction. 
Hence persons having goods to sell, are generally 
anxious to sell before there shall be a reduction in 
prices. And some one, that he may sell sooner than 
others, offers to sell for less. They, as soon as they 
hear of it, "come down" in their prices also, and 
are in haste to sell before the reduction shall have 
gone farther. 

(3) When prices are high producers are making 
profit, and of course the more they sell the greater 
the amount of profit Hence, in order to sell more 



152 POLITICAL ECONOMY. 

they will sell cheaper, until the price comes down 
to the average rate of profit. And then they will 
stop, because if they fall in prices any further, they 
lose instead of making money. 

(4) There is yet another motive to competition of 
a still more general nature. Any person engaged 
in business is supposed to be desirous of making 
money as fast as he can. He can increase the 
amount of his profit in either of two ways, (i) sell- 
ing at higher prices, or (2) selling more at the same 
price, if he can do so without a corresponding in- 
crease in the cost of production. But he can do 
the former — sell at higher prices — only in certain 
.'conditions of the relation of supply and demand, 
conditions, which, as we have just seen, will, under 
the law of supply and demand, very soon regulate 
itself 

But it is manifest if one can make and sell a larger 
number of articles without any corresponding in- 
crease in the cost of production, he will accomplish 
the same result in regard to the amount of his 
profits. One hundred articles sold at fifty cents 
each, will bring as much as fifty articles at a dollar 
each. And the profit on one hundred articles is 
twice as much as that on fifty, if there is any profit 
on the manufacture and sale at all. Hence, in order 
to increase the amount of sales up to the highest 
amount that can be produced, without undue in- 



RENT AND WAGES. 153 

crease in the cost of production, each producer 
becomes a competitor to every other man who is 
dealing in the same kind of articles. Thus each one 
is induced to ''undersell" his neighbor, until prices 
are so low that the rate of profit will not warrant 
any further reduction or competition. 

118. The effect of these laws on prices. 

Hence competition will always bring the price of 
commodities to the average cost of reproduction. 
But that is also the point of average rate of profit 

It follows that exchangeable value is the point 
around which price always fluctuates, and to which 
it is always tending, and that, therefore, the average 
of price is always equal to exchangeable value. 
For when price is above, the very fact will set in 
operation causes that will bring it down ; and in like 
manner when the price is low, this fact will set at 
work causes that will bring it up. Like the gov- 
ernor of a steam-engine, either an excess or a defi- 
ciency of velocity is made to correct itself and 
adjust the motion to the proper standard. 

iig. May not act instantaneously. 

But these laws will not act instantaneously : the 
interference of speculators will often disturb the 



IS4 POLITICAL ECONOMY. 

operations for awhile, and cause rises and declines 
in prices, totally Irrespective of the laws of compe- 
tition and the relation of supply and demand. But 
of course speculators are obliged to act through 
these laws, and their operations differ from the nat- 
ural ones, chiefly in the fact that they create the 
state of facts themselves, on which the laws act ; 
produce by their operations an appearance of excess 
of demand, or by withholding commodities from 
the market, they make a shortness of supply, which 
there is no natural occasion for. 

Again, custom has much to do with regulating 
prices. The price of any commodity, once fixed, 
does not fluctuate with every variation In the state 
of the market. Dealers having the articles to sell 
prefer to take the consequences — the chances — of 
slight advances and depressions In the price which 
an article may cost them, rather than be constantly 
changing from day to day ; the average of their 
profits will be as great, with less of trouble to them 
and to their customers, than with constant fluctua- 
tions. This remark holds true, however, of prices 
at points far remote from commercial centres, rather 
than in those centres themselves. These variations 
of price frequently occur, in some articles at least, 
several times during the same day. 



RENT AND WAGES. 155 

120. The foixe of habit on prices. 

This law of competition and supply and demand 
applies as well to the wages of labor and to the rent 
of capital, etc., as to any other articles having any 
price or exchangeable value whatever. But in 
regard to these, as, in fact, in regard to many other 
articles, there is often a force of custom or habit 
that retards the ready conformity of prices to the 
conditions of the law. If wages, for example, are 
fixed at one dollar per day, for a certain season of 
the year and a certain kind of labor, they are likely 
to remain at that price for some time after the law 
of supply and demand have been calling for a 
change. Bye-and-bye, however, the employers 
begin to think that they are paying too much for 
their labor, and propose a reduction of wages, 
and v/ill hire no new hands at the old prices ; or, on 
the other hand, the laborers, if they are free and 
intelligent, begin to find that they might as well get 
more than they are receiving, and rise in their 
prices, or possibly combine in what is called a 
"strike." If they are right in their estimate of the 
fact they will succeed. But whenever a change is 
proposed by either party, or in either direction, its 
success is certain if the amount be in accordance 
with the laws above stated. If labor be scarce in 
comparison with the demand, wages will rise ; if it 



156 POLITICAL ECONOMY. 

be more abundant than the demand, it will fall; 
rise in the one case and fall in the other, until the 
equilibrium is attained. 

121. The law of supply and de7nand will produce 

a supply. 

We may trust the law of supply and dernand for 
these two results. 

(i) It will provide for a supply, whenever there is 
a demand, unless the possibility of supply is Hmited 
by nature, as in case of the metals, etc. 

For under this influence the price will rise, either 
to the intrinsic value of the article in market, or 
until it is so great that somebody can afford to pro- 
duce it at the price offered. 

122, Will distribute laborers to the various callings. 

(2) The law will distribute population among the 
various callings and kinds of labor, as they are 
needed in such proportions to each, as will best se- 
cure a supply of whatever is wanted. 

For, if at any time there are not enough engaged 
in any particular kind of productive labor, the few 
who are so engaged will be making more than the 
average rate of profit, and others will rush into that 
occupation. And conversely if there be too many 



RENT AND WA GES. 1 5 7 

in any occupation, their rate of profit will be below 
the average, and people will leave it. • 

And thus we have a law that will solve for us 
practically, if we will let it have its course, some of 
the greatest problems in social science. 

We are often obliged to contemplate man, not 
only as acting in regard to self interest alone, but 
sometimes even as acting selfishly. Still, even this 
has its good results. Suppose a large city, and a 
community of people around it devoted to raising 
supplies. Each man goes out in the morning to 
buy what he wants for the day, and cares for no- 
body else. His purchases affect the state of the 
market, the supply and demand. Each man living 
in the neighborhood goes into market either to sell 
or to learn what is wanted. The traders are pre- 
pared to buy only what they can sell, and care for 
nothing else. The countryman thus learns what he 
can sell, and goes ' home to produce that article, or 
rather, the one of those that are wanted that he can 
produce to the best advantage, and cares for nothing 
else. But in this way the wants of the consumer 
are made known ; the supplies are calculated and 
provided for, as no Commissary or Political Econo- 
mist on earth could compute and provide for them. 

I2J. Will regulate wages among the dijf event 

employments. 
Let us now proceed to consider the facts that de- 



158 POLITICAL ECONOMY. 

termine the rate of wages and rent, separately, be- 
fore we make any effort to determine their relation 
to one another. 

While both parties are desiring to get as much as 
they can, there is this difference between them ; the 
laborer must have some capital or he can do but 
little work, and can, of course, provide no adequate 
supply for his most imperious wants ; the capitalist 
can live for a while on his capital, without rents. 
But while so doing he is using it up, and has poverty 
before him, and himself fast and inevitably approach- 
ing it; the laborer sees this and knows that of 
course the capitalist dreads poverty more than he 
does, and fears a diminution of his capital, as a 
general thing, more than the laborer does the hard- 
ships that will result from being out of employment. 
He can always do something. 

Hence, in any contest, although the capitalist may 
often get an apparent triumph, it can only be ap- 
parent ; it must be short-lived, and the laborers will 
inevitably get the advantage, and control affairs in 
their own way, in the end. This, however, can be 
the case only when the laborers are intelligent 
enough to manage affairs for themselves, and when 
they have the right of elective franchise, so as to 
prevent any laws being made, or other interference 
by way of force, on the part of the capitalists to 
prevent it. 



RENT AND WAGES. 159 

12^. Thne a factor of wages. 

Wages is always expressed by a number, which 
denotes a product into which time enters as a factor. 
It is so much per month, per year, etc., and as the 
time per day, as well as the effective force of labor, 
varies somewhat with the season of the year, there 
is an advantage in speaking of it as so much per 
year ; and then, dividing that amount by the number 
of working days in a year, or about three hundred, 
we obtain a uniform average for a day's wages, 
which, however ideal it may be in some respects, is 
important as a means of calculation. 

A laborer may be regarded as a machine — ^his 
body — if we regard him as a workman earning 
wages for himself; and the entire man — soul and 
body — if we regard him as producing value for 
another. 

Considering him now in the former light, his body 
is a tool, or machine, by which he utilizes the spirit- 
ual force that is in him, and constitutes his person- 
ality. In this respect he is analagous to a steam- 
engine. 

(i) It cost a certain definite sum to raise him 
from infancy, up to the time when he could work, 
just as it cost a certain definite sum to build the 
steam-engine, and get it ready for work. 

(2) And, as in the case of the steam-engine, it 



i66 POLITICAL ECONOMY, 

costs something for fuel and oil, so with the laborer, 
it will cost something day by day for food and 
clothing. 

(3) And as the engine occasionally needs repairs, 
so the laborer will have sick days and medicines 
and nursing. 

12^. Time also a factor in rent. 

Now in seeking to ascertain what should be the 
cost of a machine we take into account these two 
elements : 

(i) Its cost; what it cost to build it, and 

(2) The length of time it will run. 

And if the laborer undertakes to find the fuel and 
oil, and to keep it in repair, we divide the cost of 
the machine by the number of days, or years, as the 
case may be, during which, with good care, an en- 
gine will ordinarily last, and the quotient is the rent 
per day, or year, as the one or the other was used 
for the unit of the division. 

If, however, the capitalist furnishes the coal, oil, 
etc., and makes the repairs, another estimate must 
be made of the average amount per day, or year, 
if the cost of these items are added to the amount 
above ascertained. 

It is estimated that every twenty years result in 
the completion of a matured laborer, man or 



RENT AND WAGES. i6i 

woman. A portion of the cost of developing such 
a machine is lost by death during this period, and 
enhances the value of those who do reach maturity. 
In estimating the cost of raising children to efficient 
laborers, men or women, we must include the years 
lived by those who die before the twentieth year, 
with the years lived by those who reach that age. 
Simply as a productive machine, a child is worth at 
any age the cost of its production. The lowest 
cost of producing a mere animal laborer, is, on an 
average, not less than J50 a year. Such a child at 
ten, is then worth $500, and the mature human 
machine, $1000. 

Accordingly, the death of every child or mature 
laborer results in a great financial loss to the nation. 
For example : during the seven years ending in 
1 87 1, 81,029 persons died under twenty, in the 
single State of Massachusetts. Their aggregate life 
periods amounted to 292,762 years, which, at $50 a 
year, had cost the nation $14,638,100 — an amount 
to be deducted, as a dead loss, from the capital of 
the nation. 

126. The result reached by another process. 

Now, it is not asserted" that the laborer actually 
makes any such calculation as to his wages ; and for 
the most part, he will not, and it is very seldom, if 
II 



V 



1 62 POLITICAL ECONOMY. 

ever, that he does. But the result is the same as If 
he did. But this is reached by another process; 
and, for the most part, without any knowledge of 
the process, or any conscious calculation at all. The 
law of competition under supply and demand will 
work the result for him. 

It will be said it is of no use to make any such 
computations, since the laborer must take what he 
can get, he cannot dictate his wages to his employer ;, 
this is, indeedy true of most laborers taken individ- 
ually. And it is true of all laborers who are in a 
condition of slavery or serfdom ; deprived alike of 
all political rights where they are, and of the means, 
and the liberty to go elsewhere. But where no such 
restrictions exist,, there are two important respects 
in which the competition, or its results obtained by 
other means, are valuable. 

i2y. Every laborer wants all ke can get. 

As a general rule, as we have already seen, la- 
borers in a free government like ours, do, and will^ 
control and determine the amount of wages, not, 
indeed, each one for himself, but the whole class 
collectively, as a class, by the law of supply and 
demand. 

As between laborers in different kinds of employ- 
ment, with the consequent difference in wages, .this 
law regulates the actions of laborers individually. 



RENT AND WAGES. 163 

(i) In the first place, a laborer must get enough 
to supply "running expenses" — so to call it; that 
is, food, clothing, etc., — from day to day, or he 
cannot live and work. 

(2) He must get enough to supply four persons, 
•or about that number, or he cannot replace himself 
and supply a constant population. This arises from 
the fact that in a family there must be a mother, 
there will be children, and the laborer himself will 
sometimes be sick, and will at length get to be old. 
And unless he can, when in the prime of life and in 
health, get, as wages, enough to meet these de- 
mands, the supply will not be kept good, and under 
the law of supply and demand the wages will rise 
imtil it becomes enough to meet these wants. 

But above this, every laborer wants all he can get. 
He wants leisure and means of improvement. He 
wants means of educating his children. He wants to 
have something to serve as capital, and help them 
to start with. He wants something to leave them 
as a maintenance when he dies. Hence, as I said 
before, he will demand all he can get. How much 
that is, we will see bye-and-bye. 

128, The higher wages of skilled labor. 

In all cases, when the labor requires any particu- 
lar amount of skill, the wages are generally higher, 



1 64 POLITICAL ECONOMY. 

than when no such skill is required for the work he 
has to do. 

This phenomena falls under two heads. ( i ) The 
law of average cost of reproduction, and (2) limita- 
tion of supply. 

The man that needs- to spend time and money in 
acquiring an education, or, having a trade, has ex- 
pended more on himself than one who has made nO' 
such acquisition. And it will take a correspondingly 
large amount of outlay to educate and fit for work 
another like him. Hence, as an engine that has cost 
five thousand dollars, should, and will, rent for more 
than one that has cost and can be reproduced for 
three thousand dollars, so the educated machine, 
physician, lawyer, etc., should and will get more 
than the man who can do only simple unskilled 
labor. 

If they were to go into a computation like what 
I have indicated above, they would divide what it has 
cost them to get their education, by the average 
number of years during which such men live, and 
are able to labor, and add that amount to the or- 
dinary wages of simple labor. 

And the law of supply and demand will bring 
them to precisely that result. If, for example, a 
man as a mason cannot get more wages than a com- 
mon laborer, none will take the trouble to learn the 
trade, and hence, from a diminution of the supply 



RENT AND WAGES. 165 

of laborers, there will be a rise in the wages, until 
it reaches the point where men can afford to learn 
the trade, 

I2g, Exceptions to the law. 

To this law there are two exceptions. 

(a) When any particular calling is disagreeable, 
or in disrepute among men, the amount demanded 
and which must be paid as wages, will be somewhat 
above what it would be by the above rule, to over- 
come the reluctance to perform it arising from this 
cause. 

(b) When the occupation is particularly pleasant 
and honorable, many will undertake it for the pleas- 
ure and honor, and thus will serve for less than the 
mere commercial value of their services. Of this 
kind are the services of professional men, the de- 
votees to art and science generally. 

/JO. Effect of constancy of occupation. 

The above statements apply to cases in which 
wages are computed by the year. When, however, 
we have occasion to compute by a shorter period, as 
by the day, hour, etc., there is often another element, 
that comes in to modify the result, which is sometimes 
called the constancy or steadiness of the occupation. 



1 66 POLITICAL ECONOMY. 

Thus masons can seldom get work all through the 
winter^ their wages will^ therefore, be higher in pro- 
portion during the summer, and the weather when 
they can work. Physicians, and men of that kind, 
are liable to very great irregularity and inconstancy 
in the occupation of their time. They charge more 
per hour than if their occupation was constant. 

Or again, when any kind of business is positively 
unhealthy, men will charge for their time, a sum in 
proportion to the time they are likely to lose by 
sickness. 

I J I. Second lam determining the rate of wages. 

The second law arises from the limitation of sup- 
ply for the demand. This law applies to men of 
extraordinary gifts only, the great men in any de- 
partment, are few and never in excess of the demand. 
Hence they can demand for their services what they 
please, and they usually get it. 

In an ordinary lawsuit, for example, a lawyer of 
ordinary capacities will answer all purposes. And 
he cannot charge exorbitant fees, for there are so 
many that can do the work as well as he that their 
competition will deprive him of work altogether, 
unless he will work as cheaply as they. But in one 
of those cases where large amounts are at stake, and 
the cause one that requires the greatest skill, the 



RENT AND WAGES. 167 

men who have that skill are so few that they can 
demand almost anything they please, and the prices 
such persons can command have no constant ratio 
to the expenses of educating them. The only limit 
to price in such cases is intrinsic value; it cannot 
rise above that 

IJ2. Average cost of reproduction will not explain 

them. 

Writers on Political Economy have usually at- 
tempted to account for the exceptionally large fees 
or salaries that such persons get, on the same prin- 
ciple — the average cost of reproduction — as they 
apply to ordinary cases. But I think they fail, for 
two reasons : 

(i) It often happens that such extraordinary per- 
sons have expended no very great amount on their 
education ; they rise to their eminence by virtue of 
some natural gift, and with no more than the ordi- 
nary means of education and no more than the 
ordinary amount of labor and study in preparation. 

(2) But generally no amount of labor, tuition, or 
expenditure of any kind can make such men "to 
order." A state may be in never so great need of 
great statesmen or a great general, and it may have 
all the appliances and means for educating and 
'^making" them. But they will not come at its call. 



1 68 POLITICAL ECONOMY, 

It may be in "perishing" need, but its calamities 
and its clamors alike pass unheeded, unless there be 
some one God-made man adequate to the emer- 
gency, and then he is invaluable, worth more than 
all other men without him. 

/jj. In what sense wages equal in all departments. 

Leaving now this last class out of the account, 
and taking note only of the great mass of laborers, 
the common run of men, such as exist or can be 
produced by education to any extent that may be 
wanted, and we have the law that 

"Taking the cost of education into account, the 
wages of labor in all departments will be equal." 

If there is no outside influence, no misgovern- 
ment, no unjust legislation, the thing will take care 
of itself and come to this result ; the law of supply 
and demand is good for that. 

/j^. This just as well as necessary. 

I have been aiming in this discussion to point out 
and discuss the laws that regulate the different rates 
of wages that are paid to men in the different call- 
ings and occupations of life, rather than to show 
the justice of what they will get, to show what 
will be, rather than what ought to be. It may be 



RENT AND WAGES. 169 

worth while, however, to pause for a moment to 
show that what will thus occur, is just and right on 
the fundamental principles of justice. 

It is not an uncommon notion among the laborers 
of the lower order, that they do all the work and 
get but a small share of the wealth. But work to 
be effective, requires brains as well as muscle, good 
calculation as well as diHgent toil. And we often 
see that a company of ten men, for example, with 
one man to plan and guide them in their work, will 
accomplish a good deal more than one-tenth more 
than they would with no such guidance. They are 
more Hkely to accomplish twice as much with him 
as they could without, thus showing that he is really 
the most effective laborer of them all, perhaps, more 
effective than them all. 

7J5. Different rates of rent. 

The same laws, in general, will regulate the rent 
that will be paid for capital, as compared with the 
wages of labor, and for one kind of capital when 
compared with another. 

There may be objects that, like Niagara Falls, are 
unique and cannot be reproduced, which will fix 
their own price, irrespective of the cost of repro- 
duction, since reproduction in such cases is impossi- 
ble, and the only limit to the price they command is, 



I70 POLITICAL ECONOMY. 

as before, intrinsic value ; the price of a thing can 
never rise above that 

But with this exception, all articles of property 
will rent for the average cost of their reproduction, 
divided by the time during which it will last, subject 
as before, to the two conditions of desirableness or 
undesirableness. A man will often give more for a 
house that is pleasantly situated, or a machine that 
is beautiful to the eye, than for one that is just as 
good , but does not please him as well. 

As in the case of laborers, if the kind of business 
be one dangerous to life and health, the laborer will 
get more wages ; so with property of any kind, if it 
be particularly liable to injury or loss, the amount of 
rent will be higher. 

ij6. Relation of rent to interest. 

It is customary in fixing rent, to have regard to 
interest paid on money. And, in fact, the two, in- 
terest and rent, obey the same laws. Money bor- 
rowed, can easily be used to buy machinery with. 
Hence, under the law of competition, if the one were 
at any time higher than the other, the demand would 
change, and bring them to an equilibrium. Rent on 
capital, however, is always a little below interest, for 
in the case of money, there is always expected a 
return of the same amount of value. And the con- 



RENT AND WAGES. 171 

tract is made on this expectation. But in the case 
of other articles of property, such as houses, oxen, 
machinery, etc., it is always expected that it will be 
worn by the use, and thus returned in a state of 
somewhat diminished value. 

It is better, therefore, in order to get at the law 
determining the rate of rent, to get first at the law 
determining the rate of interest. And here we 
must take note of the fact that in most cases of 
borrowing and trading between man and man, there 
is some uncertainty about getting back what had 
been lent. And hence an extra sum is charged as 
insurance against the risk of loss. Still, however, 
the average rates at which money can be hired on 
first class securities, is near enough to absolute inter- 
est for all our present purposes ; and we have the 
law. 

ijy. Rate of interest decreases with increase 
of capital. 

Let us suppose a laborer with no implements, but 
(to simplify the case) with plenty of land, free of rent, 
to cultivate. His neighbor, a capitalist, has hoes ; 
the gardener finds that with a hoe he can raise twice 
as much as without, other things being the same. 
He can afford to give one-half what he could raise 
with the hoe, for the use of it, which would be one 



172 POLITICAL ECONOMY. 

hundred per cent. ; that is, he would give for the 
hoe, as much as he could produce without it. 

Now, without going through all these stages, the 
time will come when capital is abundant, and when 
every laborer in consequence will have enough of his 
own, so that he will not want any more ; that is, he 
will have all the tools and machinery that he can use 
in his business with any advantage — with any incre- 
ment to the efficiency of labor, and therefore he 
will give nothing for any increase ; capital will com- 
mand no rent, money no interest, from him. 
Doubtless there will be stages in the progress of 
improvement, times when great discoveries are 
made, when a new machine or something of the 
kind will cause an exception to the general rule. 
The average tendency of interest and rent, when 
reckoned, as is usual, in the per cent, of capital, is 
downward ; for the reason that at each successive 
stage the added implement or improvement will 
give only a less increment to the efficiency of labor, 
until we arrive at the period when there is no other 
implement that can be bought that will give any 
increase to the efficiency of human labor. 

We have, then, the following as two general laws : 

(i) With every stage in the advance of civilization 

we find that human labor becomes more valuable ; 

that is, a given amount of it, with the use of 

machinery, (which is always increasing,) will pro- 



RENT AND WAGES. 173 

duce a larger amount of intrinsic value. Or if, as 
in a preceding section, we take labor as the standard, 
then we have the law, as there given, that with 
advancing civilization the price of all commodities 
tends to become less. 

(2) Under the same conditions, the rent on capi- 
tal becomes less with each advancing stage of 
civilization, until we reach the limit, when it is 
nothing. 

I J 8. Depends rather on value than amount. 

In considering the rent on capital with reference 
to this law, we must always take the value, rather 
than the amount, as the basis of our calculation. 
The rent of a farm, for example, may be but a few 
hundred dollars, in a new country where people are 
but few and land cheap. But let the population in- 
crease in density, and the land, though the same in 
quantity, becomes more valuable, and it may rent 
for as many hundreds of dollars as it did for tens 
before. And yet, doubtless, the rent will be only a 
smaller per cent, of the estimated value of thd land. 

This results, also, from the law already established, 
namely : that rent or interest is a less per cent, of 
the cost of all commodities as civiHzation advances, 
and wealth increases ; notwithstanding, the capital 
thus used increases the efficiency of the labor, so 



174 POLITICAL ECONOMY. 

that more is produced with it than could have been 
produced without. The laborer gets the share due 
to labor. And while human labor is but a decreas- 
ing element in the production of each particular 
article — so that the articles come to be cheaper, and 
cheaper — the labor produces an ever increasing 
number of these articles, so that what the laborer 
gets, is a much larger number of articles with equal, 
perhaps greater intrinsic value, at a much less and 
constantly decreasing cost. He gets more and more 
of the necessaries of life, and whatever he may hap- 
pen to want to use with a day's labor, with every 
step in the advance of civilization. 

Hence, with regard to the capital itself, being but 
the distributive wealth, so long as it is increasing 
faster than the population, after a certain stage in the 
progress, it becomes a supply, increasing faster than 
the demand. Hence the price — rent or interest — 
must fall, whatever may be the average cost of re- 
production. 

ijg. Important law of distribution. 

From these considerations, we have the important 
law, namely : 

That while the total increment is constantly in- 
creasing with increasing density of population, and 
the accumulation of capital, giving an increase of 



RENT AND WAGES. 175 

both aggregate and distributive wealth, and a greater 
amount of increase to both the capitaHst and laborer, 
the proportion of the increment which goes to the 
capitalist, is a decreasing one, and that which goes to 
the laborers, is an increasing one. 

Or, to put the same thing in another form, rent 
grows less and less in proportion to the value of the 
capital rented, and labor is constantly commanding 
a higher price, and the laborers are getting more and 
more wages. 

And this process, of course, tends to elevate the 
laborer, and to equalize the distribution of wealth 
between him and the capitalist. 

This change will show itself in the increased ease 
and frequency with which persons, starting in life 
with nothing but their hands and their brains, will 
rise to the possession of wealth. It will show itself 
also, soon, and about as soon, in the improved con- 
dition of the mass of laborers themselves. 

1 4.0. Capitalists cannot defeat this law. 

It is a very comman notion, that if capitalists 
choose to keep their capital in their own hands, they 
can make their own terms, and demand what rent 
they please. It is a very common opinion with 
Political Economists, as well as with others, that 
capital is more than either brains or muscle, and 



176 POLITICAL ECONOMY. 

rules the world. But we answer that they cannot 
keep their capital in their own hands. When, as in 
this country, there is no privileged class, such a 
thing is impossible. I have already shown how in 
that case they would consume it and come to pov- 
erty, and in ceasing to be capitalists, they must 
become laborers, and be obliged to go to work. 

It is a political and a physical impossibility for 
any number of capitalists to hold the land in unpro- 
ductive idleness. It must be cultivated in order to 
produce crops ; the laborers, therefore, will have it 
to cultivate. And if they cannot hire tools at prices 
below their intrinsic value, that is, for the same as, 
or less than, the difference between what they can 
do with and what they can do without, they will do 
without them^ and do something too : begin where 
our savage ancestors began ; use a sharp stick for a 
hoe, a flat stone for a spade, and a pine knot for a 
plough. And next year they will have better tools 
from their own manufacture and no thanks to the 
capitalists. No class combination or civil power on 
earth can prevent this. This, however, is an ex- 
treme case. As a general rule, the law of supply 
and demand and of competition will regulate this, 
and bring rent and wages to an equilibrium. 
Neither class will commit suicide, least of all the 
capitalists. 



RENT AND WAGES. 177 

i/!j.i. Equality between rent and wages. 

Suppose, for example, rent is too high, that is, so 
high that a laborer of average capacity will have 
less remaining as profit at the end of the year, after 
having paid his rent, than he could have had if he 
had worked for wages ; we shall have a large sup- 
ply of laborers for wages, and a small demand for 
capital to rent. Rent will, of course, come down in 
obedience to the law of supply and demand. Or 
suppose, on the contrary, that rent is so low that the 
profits to the laborer, after paying it, will be more 
than wages ; capital will be in demand, and rents 
will go up. And thus the thing will regulate itself 
and that law of justice between man and man will 
be found by this means, which no man, by abstract 
reasoning, has been able to discover. 

I/J.2. The same result reached iji another way. 

We may reach a similar result in another way. 

Suppose it takes two days to make a spade, and 
a spade will last only one day ; the capitalist puts 
in two days to the gardener's one, and is entitled to, 
and will ordinarily get, two-thirds of the products 
of the day's labor. If the spade will last a season 
of one hundred days, the capitalist puts in but two 



12 



178 POLITICAL ECONOMY. 

per cent., and so in proportion will retain his share 
of the increment as rent, accordingly. 

Now all capital is in this way the product of labor. 
And the capitalist is supposed to have produced it 
by his own labor. It is in this way that he does 
his part in the work of creating wealth and produc- 
ing a supply for the wants of mankind. And 
although we cannot always compute the amount of 
labor that any article of capital has cost^ yet the law 
of supply and demand, wiser in this, as in most 
things else, than our most profound calculations^ 
will bring us to the just result in all cases. 

If a man can make more money by making tools 
than by using them, he will go to making them in- 
stead of using them. This is of course the general 
rule. 

14.3. Causes that retard the operation of the law. 

But some there are, who, having learned one kind 
of trade, or for other reasons, being attached to 
one particular mode of life, will continue in it after 
his income in it has fallen below the average rate of 
profit, to which all forms of industry, all kinds of 
trades, and, as we have now seen, even the compe- 
tition between capital and labor itself,' always tends. 

If any kind of labor has become, in the common 
expression, a *'bad business," "does not pay," the 



i 



RENT AND WAGES. 



179 



old may continue it, but no young men seek it as a 
calling and the middle-aged, who can do so, will 
seek some other means of providing for their wants. 
Not choice or taste, only, determines man's actions 
in this life. Often there is a necessity for him, to 
which, although here and there an individual may 
resist it, the mass must at length submit, whether 
they choose to do so, or not. 

And \i^ in any cases, persons complain of high 
rent, or low wages — complain that rent is above the 
value of the property, or wages below the value of 
their services — they must remember that they com- 
pare property by one standard, when they complain, 
■and by another, vv'hen they make the bargain. If 
they give more than the average cost of reproduc- 
tion for rent, it is because the article rented has, in 
their estimation, another value, besides its mere com- 
mercial one. And, if they work for less than their 
labor is worth in money, it is because they get some- 
thing else than money, as fame, gratification of 
taste, the consciousness of benefit to others, as the 
consideration on account of which they work. 

/^^. Predominance of labor. 

We have seen that human labor, however aided 
by the forces of nature, is the only thing that enters 
into our estimate of value, and that with each succes- 



i8o POLITICAL ECONOMY, 

sive stage of an advancing civilization the proportion 
which this bears to the forces of nature becomes 
less ; therefore the value of each of the articles that 
constitute wealth decreases. 

For the same reason, as well as for the one given, 
rent and interest will decrease also. And the only 
exception in the case of rent is that in which the 
exchangeable value itself, as in the case of land, is 
rising by labor bestowed upon or around the rented 
property. 

Hence in this world labor is king. He that will 
do the work must and will enjoy the proceeds of his 
labor. Such is the law, and all nations are tending 
— slowly, perhaps, but surely and irresistibly — 
towards its realization. The abolition of hereditary 
distinctions and privileged classes, with inherited 
political powers, has cleared the field of all obstacles 
to its fair play and full operation in our own coun- 
try, and the most advanced nations of the old world 
are drifting into the same current, and must finally 
come to the same result 



CHAPTER VIL 



OF EXCHANGE. 

No exchange without division of labor — Exchange between those 
who use tools — Tools the result of past labor — How determine 
their value — Tools reappear in other articles — ^The basis of ex- 
change — Elements of labor represented in any article — Basis of 
estimate between the buyer and seller — The gain by the ex- 
change — The money-price of but little account — In what 
respects important — The benefits of exchange — The cost of ex- 
change — Who bears the cost ?— -Cost varies with bulk and 
weight — Commercial centres determining prices — How deter- 
mined at the centres — Effect of the rising of new centres 
— Of centres of production — Cost distributed between the pro- 
ducer and the consumer — The only way of escaping this result 
— What is sold determines the price of all that is produced — It 
determines also the price of all other articles — A common mis- 
take with regard to the benefits of trade — Thrift determines 
the amount of exchanges — Benefits of proximate exchanges — 
Articles should be manufactured at a place of production — 
Difference in facility for manufacture and production — The 
great wealth of commercial centres — Inferences in favor of free 
labor and free trade — Governments not satisfied with this — 
I. Monopolies, copy and patent rights — ii. Usury laws — Argu- 
ments in their favor— ill. Tariff, for revenue — Objections to it 
— Effect of tariff on importations — What makes a tariff protect- 



ig2 POLITICAL ECONOMY. 

ive — Effect of a tariff that is below protection — Limits witliint 
which protection is possible — List's doctrine — Protection and 
national independence — Diversification of industry — Free trade 
reduces the wages of the laborers — The evil effects of low 
wages on th^ laborers — Beneficial effects of the higher manu- 
factures — Free trade only with free laborers — Difference between^ 
British doctrine and British practice — ^John Stuart Mill advocates 
protection — Classes of persons that are not likely to favor pro- 
tection — Political motives that may oppose it — Probability of 
, the continuance of protection in America. 

Division of labor in the utilization of the forces 
of nature in the production of wealth, depends upon 
the possibility and the prospect of exchange. 

j^5. No exchange without division of labor. 

Exchange is the giving of one article having ex- 
changeable value, for another having the same kind 
of value. Sometimes these articles are changed im- 
mediately by the producers of the respective articles 
themselves, and in that case it is called "barter." 
But as this is inconvenient, all civilized nations, and 
most savage nations, in fact, have found some means, 
of exchange called money, for which the producers 
sell, and with which consumers buy whatever they 
choose to make the subject of exchange at all. 

But unless persons could make exchanges, each 
one would be obliged to give his attention to the 
production of that which he would need for his own 



EXCHANGE. 183 

consumption, and no accumulation worth speaking 
of would be possible. 

Exchange must, therefore, begin to take place in 
some form, at the very inception of civilization. It 
takes place between the members of the same fam- 
ily. When, for example, it is arranged that the wife 
shall have charge of, and do the work in the house, 
and the husband, in like manner, see to, and do the 
out- door work, there is an exchange of labor ; or, 
what is the same thing, the products of labor, be- 
tween them. And thus exchange is the basis of di- 
vision of labor, and begins even in the domestic 
circle. 

1^6. Exchange between those who make^ and those 
who use tools. 

But as soon as fixed habitations are commenced 
among men, diversity of employment comes in, of 
necessity. Some will make tools, others will use 
them. Soon we have the makers of tools divided 
into trades, as shoemakers, tailors, blacksmiths, car- 
penters, masons, etc, ; and those who use the tools, 
will also accustom themselves to different employ- 
ments ; and a large share use tools that have been 
made by others, while making tools for others to 
use. 

Take a single example for an illustration : the 



i84 POLITICAL ECONOMY. 

carpenter uses, we will say, a hammer. He makes 
with it a house, which is a tool to live in, a barn^ 
which is a tool to house crops in,, and the stock of 
the farm, etc. But then, the farmer produces wheat,, 
etc., which is but a tool to produce human bone and 
muscle, and the bone and muscle are but tools to- 
produce other commodities, the products of labor. 
And thus, in a most general vieWy everything, ex- 
cept the soul of man — the intelligent moral agent 
in the body — is but a tool by which that soul con- 
trols and uses all else below, for its own purposes. 

i/j-j. Tools the result of past labor. 

But let us consider the hammer a little farther. 

And first, in a backward glance, we see that the 
tool is the product of labor ; a laborer of one kind 
made the handle, and a laborer of another made the 
head. But those who made the handle used tools 
partly of wood and partly of iron and steel Hence 
then we are on the track that leads back to the lum- 
berman and miner. But the lumberman and miner 
used tools- — ^tools consisting of parts of wood and 
iron, — ^which lead our thought farther back to other 
lumbermen and miners before them, and so on to 
the first man that ever performed a single stroke of 
labor on this earth. A small fraction of that labor 
— infinitesimally small, indeed — appears in every 



EXCHANGE. 185 

article we use or enjoy to-day, and will do so to the 
end of time. 

And in buying the hammer, for example, the 
carpenter pays perhaps a dollar. But that dollar 
goes to pay for the work done by each and all this 
endless line of co-laborers in its production ; and 
some part of it is the compensation for each man's 
share, from Adam the first man, to Smith the hard- 
ware merchant, of whom the carpenter bought it for 
the aforesaid price. 

1^8. How determine their value. 

But how came it that the carpenter paid just a 
dollar, that and no more, for the hammer ? Did he 
or the hardware man go into any calculation of (i) 
the amount of human labor required, on the average, 
to produce the sixteenth of an ounce of gold (if 
that be the exact amount in a dollar ?) and (2) the 
exact amount of labor performed by each one of 
this endless line of co-operators from Adam down, 
determining and assigning to each the precise 
amount of his labor which reappears in this particu- 
lar article of mechanism ? Of course not : the 
thing would be impossible. But the law of supply 
and demand has done it for them, and made ready 
the price the moment the parties are ready to make 
the exchange. 



i86 POLITICAL ECONOMY. 

i/j-g. Tools reappear in other articles. 

Now let us take a forward glance. 

The carpenter uses the hammer. With every 
blow it wears out and approaches the day of its final 
consumption and return to the condition in which 
the intrinsic value it had received from all this labor 
is gone; and it remains a mere piece of iron con- 
signed to rust, and the handle is used, perhaps, to 
kindle a fire with. Some part of the hammer, 
therefore, may be considered as going into every 
article -the carpenter makes and uses the hammer in 
making ; and he charges for every article and every 
day's work a little more for the use and wear of his 
hammer. And the purchaser of his wares pays 
back to him what he paid for the hammer — the 
wages of all the line of laborers whose work went 
into that hammer — and a little more, to pay for that 
share of his labor which also went into the articles, 
each one according to its proportion. 

And the hammer goes into every article he makes 
in using it, in infinitesimally small quantities indeed, 
but it goes into them, and they as tools go into 
other articles in like manner, increasing in number 
in a geometrical ratio, carrying with them a con- 
stantly diminished and diminishing portion of the 
hammer, until it becomes distributed into portions 
inconceivably small and incalculable in number, ever 



EXCHANGE. 187 

increasing in number and subdividing in amount, to 
the end of time, and the consummation of all 
things. Not a second's work, not an action of 
muscles in productive labor, is ever lost, or can be 
lost, any more than a particle of matter can be either 
created or destroyed by the urgency of human needs 
or the dexterity of human manipulations. 

750. The basis of exchange. 

Now, primarily, the labor that has gone into any 
article, is the basis or condition of its exchange. It 
created the exchangeable value, and determines its 
amount. Or, to be more exact, the average amount 
of labor needed to reproduce the article, is the 
average of the price at which it will be sold. 

Mill, (B. I, Ch. II, § I,) after tracing this subdivision 
of labor, and remarking that the ultimate parts are 
exceedingly, incalculably small, adds, ''such quantities 
are not worth taking into account for any practical 
purpose." But we may not treat them as nothing. 
They make up the exchangeable value, small as they 
are, and we might as well deny that the sun is the 
source of light and heat, because we can not com- 
pute the light of a single beam, or the heat of a 
single ray which it is constantly emitting, and by 
which the earth is made habitable — the glad abode 
of man. 



i88 POLITICAL ECONOMY. 

Hence on his theory "value," which is but another 
name for "price," is but the measure of the diffi- 
culty of obtaining anything arising from the limita- 
tion of its quantity. This may be true enough in a 
certain sense, but it is non causa pro causa, not the 
truth which the case requires, even if it be a truth 
at all. Why is the quantity limited ? possibly and 
undoubtedly by nature in some cases ; but for the 
most part because no more labor has been expended 
in producing it. And what constitutes the difficulty 
of getting it? It can be only the work that has 
been performed, or rather that which is needed to 
reproduce it. 

757. Elements of labor represented in every article. 

It will be the most economical, and (if we exercise 
proper care) it will lead to no practical evils, to 
speak of the labor with which an article has been 
produced as the only item that is at all worth con- 
sideration. This labor may, without going too 
minutely into detail, be referred to three heads : 

(i) The labor of the agriculturist and the miner 
in producing the raw material. 

(2) The labor which each of the manufacturers 
and traders in various ways bestows on the article 
while in his hands. 

(3) The distributive share of labor expended in 



EXCHANGE. 189 

producing the tools and machinery, which were 
used in the work done on the commodity, and the 
food, clothing, etc., consumed by the laborers while 
producing it. 

1^2. Bases of estimates between the buyer and the 

seller. 

Each party to a contract estimates the commodi- 
ties indeed by the labor they have cost. But then 
each party has a different standard by which to 
estimate this cost. Each party estimates what he 
has to sell by what it has cost him in skilled labor, 
and what he has to buy at what it would cost him 
in unskilled labor to produce it. 

/5J. The gain by the exchange. 

Thus, suppose it takes, on the whole, four days to 
make a hat and four to make a pair of shoes ; that 
is, it takes the expert artizan that amount of time to 
produce them. But it will take the inexpert man 
more time, and the article will be inferior at that. 

Now suppose it takes the hatter four days to 
make the hat and eight days to make the shoes — in 
all twelve days to make for himself a hat and a pair 
of shoes. In like manner it would take the shoe- 
maker four days to make for himself a pair of shoes. 



190 POLITICAL ECONOMY. 

and eight days to make his hat ; and thus it would 
require twenty-four days' work to supply both 
parties with hats and shoes without exchange, 
whereas with exchange it will cost but eight days 
each, or sixteen in all. And supposing the artizans 
keep at work all the time, there is a gain to the 
wealth of the community of the product of eight 
days' labor, or a hat and a pair of shoes for the 
laborers in some other form of industry, in conse- 
quence of this division of labor and the exchange 
which is thereby rendered possible. 

In the case supposed, the hatter and the shoe- 
maker will exchange even. But suppose one of 
them, the hatter, invents a means or process, by 
which he can produce a hat in two days, with no 
larger outlay for stock or tools, etc. He could 
now afford to give two hats for a pair of shoes ; but 
it is not likely that he would reduce his price quite 
so much as that. He will rather increase his profits, 
by asking a little more than half the former price. 
Now, suppose the shoemaker, should find means or 
processes for making shoes, whereby he could make 
a pair in two days, and the hats and shoes would 
exchange one for another, as before. And so on, as 
long as the human labor of production is the same, 
the exchangeable value will be the same. 



EXCHANGE. 191 

75^. The money-price of but little account. 

So far as anything we have before us now is con- 
cerned, it is manifestly of no consequejice what we 
call the price of a hat or of the shoes^ whether a 
shilling, a dollar, a pound, or a thousand dollars, 
whether an ounce or a half ton of gold, coined or 
uncoined. Gold and silver are no standard of value : 
labor is the only standard, the only thing we pay for, 
the only thing that we buy or sell in our business 
transactions. 

As this is an important fact, let us, in order to 
make it plainer, make another supposition. Sup- 
pose the shoemaker asks a thousand dollars for his 
shoes ; the hatter, not having the money, goes to 
the bank and borrows it, pays it to the shoemaker, 
and the shoemaker on the next day goes to the 
hatter, and pays the same amount, the same identi- 
cal bills, perhaps, to the hatter for the hat, and the 
hatter takes the money back to the bank, and pays 
the debt he contracted when he borrowed it, and all 
things return to statu quo. 

755. In what respects it is important. 

I want the hmitation above indicated, however, 
to be carefully noted ; for it does make a difference 
what is the price of commodities, in two very im- 
portant particulars. 



192 POLITICAL ECONOMY. 

(i) The money used in making the exchange is 
never without cost. It costs something for the use 
of it, and interest is always in proportion to the 
amount, as six, or some other per cent 

(2) If coin is used, there is always some loss by 
wear, etc., which is also always in proportion to 
the amount used. It has been computed that the 
wear and loss of gold and silver would be about one 
per cent, per year of the entire amount used, if all 
our exchanges were made in coin, instead of using 
paper. 

Each of these items will come up for special con- 
sideration under a subsequent head. But they are 
so small, that for present purposes, we may as well 
leave them out of the account. It will simplify our 
discussions very much to do so, and will make no 
difference with the results. 

We then assume, for the present, that the price of 
articles, that is, the money notation of their value, 
is of no importance to the fundamental laws of ex- 
change. 

1^6. The benefits of exchange. 

The benefits of exchange then, are referable to 
two heads. 

(i) When there is a difference in soil, climate, 
mineral resources, etc., etc., or, (2) a saving of labor 



EXCHANGE. 193 

wlien compared with the production at the place of 
consumption. Thus, it is cheaper to bring coffee 
from Brazil, Porto Rico, etc., than to build hot- 
houses and raise it here. We have considered this 
already. 

(2) But in the same locality^ where the transpor- 
tation is nothing, or only a minimum, we gain by it 
all the difference between the productiveness of 
-skilled and unskilled labor, involving, as this does, 
the advantages of the division of labor, the utiliza- 
tion of the forces of nature, etc., already considered. 

i^y. The cost of exchange^ 

But exchange, at any rate and in any form, in- 
volves some cost by the very act of making it 
This we may resolve into two elements. 

(i) The mere labor and expense of the trader, 
which consists again of two elements; (a) his 
capital, as store, etc., which will inevitably obey the 
laws of rent already laid down, and (b) his labor, 
which under the laws already laid down, will also 
reduce to the average rate of wages for all kinds of 
labor. 

(2) The cost of transportation which will arise in 
all cases where there is a distance between the pro- 
ducer and consumer. 

This might be reduced to the two elements above 
13 



194 POLITICAL ECONOMY. 

named, namely : cost of means of transportation, as 
teams, railroads, ships, etc., and the labor needed in 
using them. But that is not necessary for our pres- 
est purpose, I wish rather to find out where this cost 
of transportation must fall. 

i^S. Who bears the cost ? 

If we ask the consumers, who live mostly in 
villages and cities, they will answer, that of course 
the consumer pays the cost of transportation, and 
will refer you to the indisputable facts, that meat, 
and flour, and vegetables, are cheaper in the country 
than in the town, in the small town than in the large 
city ; that coaly and fuel of all kinds, are cheaper at 
the mines than when delivered at their doors. 
Hence they infer that the consumer pays all the 
cost of transportation. 

But many Political Economists hold, nevertheless, 
that it is the producer who pays the cost of trans- 
portation : this is especially true of Carey, and the 
American writers who follow him. And they refer 
to the equally indisputable fact, that any commodity, 
as flour, for example, has a fixed price or value in 
the city, and that at varying distances from the city 
the price is less, just in proportion to the cost of 
transportation. . Thus, note the price of flour at 
New York, at Albany, at Buffalo, at Chicago, etc.. 



EXCHANGE. 195 

and you will find the difference in price between 
New York and Albany, between New York and 
Buffalo, as much more as the cost of transportation 
from Buffalo to Albany ; and so on, to the re- 
motest point from which any flour is brought to 
New York. 

But in fact neither of these parties are altogether 
and wholly in the right. 

In order to get at the exact truth, we must con- 
sider a few preliminary matters. 

f5p, Cost varies with bulk and weight. 

The cost of the transportation of articles varies 
with (i) their bulk or {2) their weight — very seldom 
with their value. 

Hence for any article there is a limit beyond 
which it will not bear transportation ; that is, the 
cost of transportation will equal the difference 
between the exchangeable value where it is pro- 
duced and the intrinsic value where it is sold. But 
for convenience let us speak of exchangeable value 
alone, as it will save words and danger of confusion 
to do so, and because, moreover, the exchangeable 
value will ordinarily be the limit determining the 
price at the place of sale, as well as at the place of 
purchase. It will also be the element that will be 
taken into account in deciding upon the transporta- 
tion to any distant market. 



196 POLITICAL ECONOMY. 

N.ow the distance to which anything can be car- 
ried will always be a product of the value into the 
reciprocal of the weight or bulk^ as the case may^ 
be. Thus if one hundred dollars worth of ha}^ 
weigh five tons, it can be carried a certain distance 
without exceeding the limits spoken o£ But if it 
should weigh ten tons, it could be carried only half 
as far, and if two and a half tons, twice as far. 

160, Commercial centres determining prices. 

Hence for all commodities there are commercial 
centres. And these centres may be either (i) cen- 
tres of consumption or (2) centres of trade. 

Suppose in a certain island there is a city to which 
all the wheat raised in the island, besides what is 
used by the producers themselves — scattered as 
they are on their several farms — ^is carried and used 
up in feeding the people ; this city would be, for 
that island and that article, the commercial centre of 
consumption. 

Or again, suppose no wheat were used in the city 
at all, and yet all that the inhabitants have to spare 
were taken there and sold to merchants to be shipped 
to some foreign country, or resold to be consumed 
by other persons in the same island ; that city would 
be none the less the commercial centre for that com- 
modity, than if the wheat were all ground up and 
eaten in the city itself. 



EXCHANGE. 197 

I have spoken of an Isolated island in order to 
simplify the illustration. And this earth itself is 
such an isolated place for all articles that will bear 
universal transportation. Such articles can have but 
one commercial centre. 

But as I have said, many articles will not bear so 
much transportation ; the cost of transportation 
would be more than the market price when they 
arrive in market Hence heavy and bulky articles 
must have a commercial centre near home, and by 
consequence, each one of them must have more than 
one such centre. And we must remember that by 
far the largest share of the articles that make up the 
annual product of labor on this earth, are of this 
kind. 

Suppose, then, an article in any existing state of 
the facilities for transportation, will bear transporta- 
tion only twenty miles. It must either have a com- 
mon centre within that distance, or it will not be 
produced for sale at all, the producer raising only 
what he wants for his own use. And that centre 
will be a place where all the producers of that ar- 
ticle, hving within the circuit of the territorial dis- 
tances just named, will compete In underbidding 
each other ; and this competition will determine the 
price for that centre. And, consequently all such 
articles, by the necessity of having many centres, 
may have as many prices In the different centres. 



198 POLITICAL ECONOMY. 

Now, it seems to me, that for all the purposes of 
our computations in Political Economy, we must re- 
gard, as the price of every article, that which it bears 
in the cominercial centre of the world, if it be an ar- 
ticle that will bear transportation from any part of 
the world where it can be produced, to that centre. 

But in case of articles that will not bear this 
transportation, there must be more than one centre, 
and, of course, more than one price; and these 
prices may be widely different in the different 
centres. And this difference in price, will be a very 
different thing from the different prices which an ar- 
ticle, that will bear universal transportation, like 
gold, for example, will have at different times, in 
precisely the same places^ and is determined by a 
different law. 

j6i. How determined at the centres. 

Let us now try and determine, if we can, what 
will be the price of the commodity in each of the 
two classes of cases. 

Suppose^ first, gold, silver, etc., including all the 
articles that will bear transportation to any part of 
the earth where they may be wanted. We have 
already seen what are the laws and conditions that 
will determine the price. It can never exceed the 
intrinsic value. Its average cannot exceed the ex- 



EXCHANGE. 



199 



changeable value, which will be, as we have seen, 
the average cost of reproduction. But competition, 
not only among the producers of those articles, but 
also competition among the producers of all the 
articles having exchangeable value, or a market 
price at all, as we have seen, will keep the average 
price down to the exchangeable value, so that the 
producers of that article will make by their labors 
the average rate of wages among mankind. 

But suppose, in the next place, we have an article 
that will not bear universal transportation. Any 
place where it is wanted, either for consumption or 
sale, will be for it a centre. 

At first the price will be determined by the 
amount of the demand, and the competition among 
those in the immediate neighborhood, who will 
take the commodity there for sale. If the price be 
too low, that is, below the exchangeable value de- 
termined as before described, the supply will de- 
crease and the price will rise. 

But if the place be a growing one, or if for any 
reason the demand increases, or the original supply 
was insufficient, either the original producers will 
increase their productions by increasing the labor 
and capital invested, (withdrawing them from 
others), or producers from a greater distance will 
bring their commodities to the new market, and the 
price will then be determined by competition among 



200 POLITICAL ECONOMY. 

the producers. All the producers will bring their 
commodities to that market, acting under the law 
of supply and demand, just as if it were the only 
commercial centre, for that commodity, that is to be 
found anywhere in the world. 

162, Effect of the rising of nem centres. 

If now a new centre should spring up within an 
old circuit or near it, or if a railroad or other means 
of cheapening transportation should be made be- 
tween any two old centres for the same article, we 
should have competition between the two, with a 
corresponding effect on prices. 

The price is fixed then, as we have seen, by 
competition and the law of supply and demand. It 
makes no difference to the city purchaser where the 
article was produced; its quality is the only thing 
that he cares for. The man that brings it in from a 
distance of twenty miles will get no more for his 
commodity than the man who has brought it but 
one. And at twenty miles distant the price is 
always less than at the commercial centre, by 
precisely the cost of transportation to that centre. 

Hence prices varying with the distance of pro- 
ducers from the city had better be regarded as the 
true and real prices, and the cost of transportation 
to that centre will be regarded as falling upon the 



EXCHANGE, 201 

producer, although the consumer pays more for the 
article for being at a distance from the place of 
production. 

16^. Limitation to the law. 

To this law there can be only one limit. 

In cases of a limitation of the production of the 
supply to one place, that one place becomes for that 
article the commercial centre, and we may have 
either : 

(i) A monopoly, in which case the owner can 
ask anything he pleases as. the price of the article 
up to its intrinsic value, (he cannot sell at prices 
above that), and determine the price for the whole 
world. 

(2) Or in case there be no monopoly, the price is 
determined by the average cost of reproduction at 
that place ; thus, if diamonds were found only in 
India, their price would be the average labor cost of 
finding them there, and the price would be deter- 
mined at the place of production, rather than at 
that of consumption, or at any commercial centre. 

Two things are manifest with the exceptions just 
stated. 

(i) The consumption among the producers would 
determine the price of the commodities in the com- 
mercial centres. 



202 POLITICAL ECONOMY. 

(2) The article would command a higher price at 
the centre than at any other place within the circuit 
of production limited by the distance for which it 
would bear transportation. 

16/J.. Cost distributed between the producer and the 

consumer. 

Accepting, now, the price of the article in the 
market as the real price, we have the result, namely : 
the producers pay the cost of transportation to the 
commercial centre. 

And for the consumer, he pays the cost of trans- 
portation from the commercial centre to the place 
of consumption. The man who produces lead in 
Missouri, sells it at the current price in New York 
less the cost of transportation. The man in New 
Jersey who buys the lead to work up, buys it in 
New York at the market price there, also, and pays 
for carrying it to his place of manufacture, and the 
cost will of course vary with the distance and facili- 
ties of transportation. 

16^. The only way of escaping this restilt. 

And the only way in which this can be escaped, 
is the manufacturer's meeting it on the way, and 
having it carried from the producer in Missouri, for 



EXCHANGE. 203 

example, directly to his shop in New Jersey, with- 
out going into New York, and out of it again, back 
to the place of consumption. 

166. What is sold determines the price of all that 

is produced. 

If now a producer lives at some distance from 
market, the cost of transportation may be quite an 
amount, and if there are others for whom it is less, 
who can furnish enough to supply the demand in 
that market, he will have to cease producing that 
commodity since its production will not pay for his 
labor. 

And it is worth noting, that it is always the por- 
tion that is sold, that determines the price of the 
whole product, in the place where it is produced. 

If wheat will sell at Chicago for one dollar per 
bushel, and the cost of transportation to that city 
from some place in the interior — Chicago being the 
nearest commercial centre — be seventy-five cents on 
every bushel that is carried thither, twenty-five 
cents will be the price of every bushel that is raised 
at the place where it is raised, no matter how much 
there may be of it, or how Httle. 



204 POLITICAL ECONOMY. 

i6y. It determines also the price of all other ar^ 

tides. 

Nor is this all. Not only does the portion of 
wheat carried to the market and sold there, deter- 
mine the price of all the wheat that is raised in the 
place from which it is carried, but it deteri'nines also 
the price of all other commodities, and of labor 
itself 

For, suppose wheat is worth one dollar per bushel 
in Chicago, and but twenty-five cents per bushel at 
some place in the interior, from which to Chicago 
the cartage is worth seventy-five cents per bushel ; 
then twenty-five cents per bushel is the price of 
wheat there. If, now, other articles could be raised 
and sold at prices such as to enable the producer to 
make a larger rate of profit, than he could by rais- 
ing wheat at that price, he would raise no wheat, but 
only the other and more profitable articles. But 
our supposition impHes that he continues to raise 
wheat. If so, other articles must sell so low, that 
the raising of them is no more remunerative, than 
the raising of wheat. And if that be the case, then 
labor itself can command only very low wages ; 
wages as much below what they are in Chicago, as 
wheat is cheaper in its money price, in the one 
place, than it is in the other. 

But of course if a new centre — a new market — 



EXCHANGE. 205 

arises, and more especially if it be a manufacturing 
village, there is a new demand. Prices will rise, to 
nearly, perhaps quite to the rates they bear in the 
old and larger centres; and of course all the pro- 
ducers in that neighborhood will be benefited by a 
rise in the price of the articles of their production, 
by the saving in distance and expense of transporta- 
tion thereby produced. 

We have now seen how trade and exchange 
adds to the wealth of a community and we have 
considered both the reasons for it and the limits 
within which it is, or can be, of any advantage to 
that community. 

168, A common mistake with regard to the benefits 

of trade. 

There is, however, a very common mistake in re- 
gard to the function of trade or commerce, in in- 
creasing the wealth of the world. It has been very 
natural, in a country or community where trade is 
the principal occupation, to regard the profits, and 
the rate of profits of the traders, as the chief indica- 
tion, if not the chief source, of wealth. But the 
statements already made are a sufficient refutation 
of this error. 

Another error kindred to it, is the doctrine that 
it is the amount of capital engaged in making the 



2o6 POLITICAL ECONOMY. 

exchanges that determines the amount of exchanges 
that will be made. 

In favor of this view, is the obvious fact, that 
trade produces about the same rate of profit on the 
capital invested, whether that capital be much or 
little, or, if anything, more when the capital is large. 
At all events, the amount of profits is larger, if not 
the rate, with, much than with little capital. And 
hence the easy inference, that the more trade and 
the more capital invested in trade, the better. 

But there are two mistakes in this theory, either 
of which would be fatal. 

(i) In the first place, it is not the amount of 
capital that determines the amount of exchange. 
It is rather the productiveness of labor. There can 
be no exchange where there is nothing produced to 
to be exchanged. And men produce, and mer- 
chants buy, only what they can sell, and make a 
profit by so doing. 

i6g. Thrift determines the amount of exchanges. 

But they can sell only on condition that there are 
people enough to be consumers who are able to buy 
and pay for what is for sale ; and they will be able 
to do this just to the extent that their ozvn labor is 
productive, or what is the same thing, the rate of 
wages is high ; the poor, poverty-stricken millions 



EXCHANGE. 207 

of Ireland, and Turkey, for example, do not give 
occasion to so much trade as the same number of 
thousands do in some of the more thrifty parts of 
New England, or of New York State. 

(2) The second error arises from not considering 
the fact already stated that, as in manufactures, so in 
trade there is a limit, in any given state of agricult- 
ural production, to the extent to which any benefit 
can be derived from those operations. When a com- 
modity has reached its highest intrinsic value, manu- 
facture can go no further. So when the cost of 
transportation is more than the difference between 
the cost of production in two places, exchange, im- 
plying as it does transportation, can be of no benefit 
to the cormmmity , but rather a loss, how much so- 
ever the merchant may make by it. 

Now the less capital that can be made sufficient 
for the accomplishment of this amount of trade, the 
better for the community. 

Hence it is manifest that anything that can dimin- 
ish the cost of transportation, will be just so much 
added to the distributive wealth of the community. 
And this, as already said, can be done in either of 
three ways. 

(i) Bringing the producer and consumer as near 
together as possible. 

(2) By building railroads, etc., by which we 
utilize, as far as may be, the forces of nature in 
making the transportation for us. 



2o8 POLITICAL ECONOMY. 

And of the two, manifestly the former is the best, 
so far as it' can be effected, since it saves all that is 
expended in making the roads, equipping and fur- 
nishing them to be added to the distributive wealth. 
Many of the difficulties of exchange, however, can- 
not be overcome in this way. Railroads, ships, etc., 
will always remain a necessity. 

Of course, not every artidie in every place will 
have the same commercial centre. London, as we 
have seen, is the commercial centre of gold and 
silver for the world, and they have no other. So 
also for cotton goods. New York is the commercial 
centre for wheat on this continent, when it is so low 
abroad, or so high here, as not to bear transporta- 
tion to the European markets. But besides this, 
many articles, as garden vegetables, etc., each have 
their centres all over the country. And in fact 
every village of a few hundred inhabitants becomes 
a commercial centre for some of the articles that are 
produced in the immediate vicinity. 

Dr. Elder (Questions of the Day, p. 183) remarks: 
"One more carpenter, blacksmith, shoemaker or 
other artizan in every township of the United States 
would give a larger, surer, and better market to its 
farmers than all the foreign world ever did or ever 
will afford." But I can see no gain from an increase 
in the number of these manufacturers, if the manu- 
facturing of these kinds was already done sufficiently 



EXCHANGE. 209 

for all the wants of the people in the neighborhoods, 
whether the increase come from either of the two 
possible sources, (i) immigrant laborers, thus in- 
creasing the population, or (2) the conversion of 
agriculturists into mechanics. 

But if the increase were from the coming into the 
neighborhood of persons who would add a new 
branch to its industry, and produce the things 
which we now import from foreign countries or 
bring from a distance, the villages that would thus 
spring up would be new commercial centres and 
markets, to work up the raw material and eat up the 
food where both raw material and food are pro- 
duced ; then there would be a saving to the farmers, 
and through them to the wealth of the world, to the 
amount of a large share of the cost of transportation, 
which is now, to so large an extent, the reason of the 
comparatively low price of all agricultural prod- 
ucts, and the high price of all manufactured articles, 
in all places that are far remote from the commercial 
centres that furnish a market for what they produce, 

/70. Benefits of proximate exchanges. 

I believe I have thus enumerated all the elements 
that enter into the difference between proximate and 
remote exchange — they are these : 

(i) The cost of transportation, 
14 



2 1 o POLITICAL ECONOMY. 

(2) The fact, that with but short distances be- 
tween the producer and the consumer, any of the 
most remunerative articles can be produced, which,, 
however, will not bear long transportation, and their 
production becomes impracticable when the people 
are scattered thinly over a large territory. 

(3) I will add one more. The manure which is^ 
needed to keep the land from getting- worn out, is 
produced at the place of consumption. 

In any village it is produced in abundance, and 
sold by tons, to be carried back to the farm and 
garden. But the commodity is so bulky, in pro- 
portion to its value, that it cannot be carried far. 

If, therefore,, the consumer and producer are far 
apart, the land of the producer must ultimately be- 
come impoverished^ — -his machinery of reproduction 
is worn out. 

The value of this element may be sliown by the 
fact that in 185a, the annual value' of the manure 
applied to the soil in Great Britain, was $516,845,- 
698, a sura far exceeding all its foreign trade. 

Of course this must have been mostly lost if, like 
some of our southern and western States, the English 
had confined themselves to the raising of the raw 
material only, and exported it for manufacture and 
consumption elsewhere. 



EXCHANGE. an 

EJi. Articles should be manufactured at the place 
of production.. 

It is a very important deduction from the forego- 
ing discussion, that all commodities should be car- 
ried to the highest practicahle form of intrinsic value 
before transportation ; that is, they should be finished 
as nearly as may be, and so put in their form for 
final consumption, as near to the place of produc- 
tion as possible, before transportation. Since in this 
case, the cost of transportation is a less per cent, of 
their value at the place of consumption, and the 
price will be lower by just that amount. 

Thus it costs about ten per cent of its value, to 
carry a bale of cotton from Tennessee to Lowell, or 
Manchester. It does not cost a tenth of one per 
cent, of its value to bring it back as manufactured 
muslins, etc. Hence, if it must be carried at all, 
(and it must be carried, since the cotton will not 
grow either in England or New England) it would 
be vastly better, for both the aggregate and the dis- 
tributive wealth of the world, to manufacture it in 
Tennessee, and transport it both ways after its man- 
ufacture, rather than carry it in the form of raw 
material in either direction. 



212 POLITICAL ECONOMY. 

jy2. Difference in facility for manufacture and 

production. 

It has sometimes been claimed that one nation 
may have special facilities for one kind of industry 
not possessed by others, that should be a controlling 
consideration. 

If the "special facilities" are intended to include 
cheapness of labor, I will postpone the consideration 
of that element for a moment 

It is admitted that for the production of agricult- 
ural and mineral commodities, there are facilities of 
climate and location that are controlling, because 
they cannot be overcome. Tropical fruits must be 
raised in the tropics^ and minerals must be dug out 
of the earth where the Creator has placed them. 

And we may as well admit, in regard to manu- 
factures of the higher grade, 

(i) That the warmer and more tropical parts of 
the earth's surface are not so well adapted to them 
as the temperate zones, while these zones are better 
adapted to the production of the greater agricultural 
staples. 

(2) That the hilly and less productive portions of 
the temperate zones, where water-power and fuel 
are usually abundant, are better fitted for manu- 
factures than those portions that are better adapted 
to the production of the raw material, so that in all 



EXCHANGE. 213 

probability, the greater proportion of the manufac- 
turing of those articles, whose manufacture requires 
the most labor and the most machine force, will al- 
ways be done in the less productive districts of the 
temperate zone. And every dollar that is wisely 
expended in building railroads, or improving the 
facilities for ship transportation, is giving to these 
elements, or "natural facilities," increased power by 
reduction of the cost of transportation. 

Nor is this all ; there is many a region in which 
there is good water-power, healthy and invigorat- 
ing climate, favorable to manufactures — particularly 
so — which are, nevertheless, so unfavorable to agri- 
culture, from poverty of the soil, etc., as to afford 
an advantage for manufactures that will overcome a 
large amount of cost of transportation, 

lyj. The great wealth of commercial centres. 

Now as we have the two results, 

(i) The producer bears the expense of transpor- 
tation to the commercial centre. 

(2) The consumer bears it from the centre to the 
places of consumption. 

We have the following deduction : producers 
living far from such centres, will, as a general thing, 
be correspondingly and in the average, poorer, for — 

(i) As producers, they pay more cost of trans- 



214 POLITICAL ECONOMY. 

portatlon on what they produce, than those who 
live nearer to the centre ; and 

(2) As> consumersy they pay nsiore cost of trans- 
portation on what they have occasion to buy. 

Hence in general^ in all places remote: from com- 
mercial centres, agricultural products^ — the products^ 
of the labor done there— —are cheaper, while manu- 
factured articles — -the product of labor not done there 
— are high, since the people have the double trans- 
portation to pay, or rather, because the amount they 
have to pay, under both these heads> is greater, the 
farther from the market. 

The only counteracting influence to this rule,, 
arises from the fact, that as we approach such a 
centre, land rises in value, and rents become higher. 
This goes far towards equalizing the condition of 
the inhabitants in reference to the acquisition of 
wealth, for all those who occupy lands that are used 
for agricultural purposes, since their rent is always in 
proportion to their productive value, the cost of 
transportation being taken into account 

But always, as we approach any commercial 
centre^ there is a point at which the intrinsic value 
of land is greater for building picrposes than for 
agricultural, and then it passes under the influence 
of another law, any increase of rent for such pur- 
poses, becomes an addition to the cost of living in 
another way ; this cost must be added by the mer- 



EXCHANGE. 215 

chant to the price of what he sells. In the same 
way, it must be added by every manufacturer to the 
articles he produces, while living within the influence 
of this law. 

Hence in large cities we have a counteracting in- 
fluence which brings the cost of the amount of the 
necessaries of life, required to support an individual, 
so high, that what is left to the laborer after paying 
for them, is not more than the wages of one who 
hves more remote from the commercial centre. 

ly/j.. Inference in favcr of free labor aiid free 

trade^ 

I have thus far considered exchange on the most 
broad and general principles. Our investigations in 
the preceding chapters in regard to production, have 
taught us that for the maximum of distributive 
wealth, we must have a dense population, that we 
may have, 

(i) The greatest diversification of labor. 

(2) The minimum of expense in exchanges. 

These must also be in order, that competition and 
the law^ of supply and demand may have their 
proper influence, 

(i) Free labor, — that is, each man must be left to 
do that which he prefers, that which he can do to 
the best advantage, and with the best satisfaction to 



2i6 POLITICAL ECONOMY. 

himself. In this way he will contribute the largest 
amount to the wealth of the community in which 
he lives, 

(2) Free trade, — that is, the unrestrained freedom; 
of each man to buy of whom he pleases^ and on 
what terms he pleases, provided, of course, that the 
other parties are willing. 

Free Labor and Free Trade, — ^these are two prime 
conditions of the greatest increase of wealth and the 
best promotion of human happiness and welfare, in 
so far as they are dependent on the existence and 
distribution of wealth. Hence the famous maxim 
in regard to these things, '' Laissez fairej' or, in the 
more pungent maxim of Lord Falkland, ** Where 
there is no necessity for legislation, there is a neces- 
sity for no legislation." 

All legislation and interference with human liberty 
is an evil, and can be justified only on the ground 
that it is the least of the two or more evils from 
which a choice must be made, 

^75' Governments not satisfied with this. 

But governments have not been art all careful to 
observe these wise precautions. In no nation on 
the face of the earth, except our own, is labor free 
in the sense here intended. For the existence of 
an oHgarchy or an aristocracy with hereditary 



EXCHANGE. 217 

political powers is necessarily and inevitably an 
interference with the freedom of a portion of the 
community, and that portion will of course be the 
laborers, who are despoiled of political rights. The 
laws will be made, as in England they have for 
centuries avowedly been made, in the interests of 
capital. 

Nor have governments been quite willing to leave 
their citizens and subjects to free trade. These 
restrictions on trade may be either domestic or 
foreign ; restrictions upon the trade of one citizen 
with another, or upon the trade of citizens with 
foreigners. 

Of these restrictions I will mention three, two 
domestic and one foreign. 

iy6. I. Monopolies^ copy and patent rights. 

I. And first, monopolies. A monopoly is the 
power of one man or a class of men, constituting 
what is virtually a close corporation, to control the 
production and sale of some one article or class of 
articles. 

A monopoly therefore precludes competition, 
which is the only means of bringing the prices of 
all things to the level of justice and equality. For, 
as a general law, wherever there can be combination 
there will be no competition. 



2i8 POLITICAL ECONOMY, 

The form of monopolies, that has thus far been 
able to maintain its place, is found in the case of 
patent rights, and copy rights. 

Thus far, no other practicable measures have been 
devised for rewarding the inventor or discoverer. 
The product of his labor is — when first introduced — 
new. It has no market value fixed, and we have 
no way of estimating its value as a means of 
increased efficiency to labor, or of promoting the 
welfare of mankind. 

Hence, there seems to be no way but to let the 
inventor try it, offer it for sale on his own terms, 
protect him from competition for a short time, and 
then end his monopoly by the expiration of his 
right. 

777. II. Usury laws. 

II. Most governments have found, and still find it 
necessary, in order to protect a certain class in the 
freedom of their labor, to fix a legal rate of interest, 
and to regard the taking of more as a misdemeanor 
punishable by law. 

These laws have never been found to prevent cer- 
tain persons from hiring money at more than the 
legal rate, whenever they have found occasion to do 
so ; violating the spirit of the law perhaps, but not 
transgressing its letter in such a way as to make 
them liable to any penalty the law might inflict. 



EXCHANGE. 219 

But it is found that without some rate of interest, 
fixed by law, there is always a tendency, with cer- 
tain kinds of persons, to take advantage of the neces- 
sities of others, and compel them to make contracts 
with high rates of interest, and what is still more, to 
take advantage of opportunities to compel their 
debtors either, (i) to raise the interest, or (2) to 
sacrifice what property they have. 

The argument against usury laws that is most 
commonly urged, is, that money is like anything 
else that a man has. He should be left free to buy 
and sell, borrow and lend, on any terms he can 
agree upon, any conditions he can make with the 
other party — that leave the borrower and the lender 
free to bargain with each other as they please, and 
the competition under the law of supply and de- 
mand will bring the price of money, that is, the rate 
of interest, to its lowest figure. 

iy8. Arguments in their favor. 

But to this, the answer usually given is two-fold. 

(i) Money is not in all respects like other com- 
modities ; of this I shall say something in the next 
chapter. We shall then see that in two or three 
most important respects it is unlike any other com- 
modity. 

(2) In the second place, it is claimed, that in 



220 POLITICAL ECONOMY, 

every case where the matter has been tried, the 
aboHtion of all usury laws, leaving the borrower 
and lender entirely unrestrained, the effect has been 
to raise the average rate of interest. 

This, however, is rather a question of statesman- 
ship than of Political Economy, and it would lead 
me too far from my plan to discuss it here. I may 
add, however, that I believe the proposition is well 
sustained, and furnishes therefore another fact to be 
accounted for by the Political Economist 

It cannot be said, that the only thing we are to 
infer from the fact that the rate of interest rises 
whenever the usury laws are abolished, is, that it 
was too low before. I think it can be shown every- 
where, that whenever a rate of interest is fixed by 
law, money can ordinarily be hired on good security 
at rates below the legal rate. Now, under the 
operation of laws that have been discussed in the 
last chapter, if the legal rate were too low, nobody 
would be a lender. Wishing to make money as 
fast as possible, he would invest his funds in some- 
thing else, rather than lend it on mere simple inter- 
est. If the legal rate were not as high as is neces- 
sary to enable the lender to make the average rate 
of profit by lending his money, it would certainly 
be raised by an act of the law-making power. 

It is claimed, nevertheless, that we should leave 
people in this, as in all other respects, to put their 



EXCHANGE. 221 

own estimate on what they buy, and pay for it 
whatever they can afford, and in accordance with 
their own estimate of its intrinsic value to them ; 
let them buy it as they please, and at any price they 
may choose to give for it 

This might be well if only they were bicying 
money ; but they are borrowing rather than buying. 
And if a man already involved and embarrassed tries 
to borrow, to help him out of his difficulty or save 
his reputation, and gives as security a lien upon 
what he has, he is really defrauding the old credit- 
ors in favor of the new one he makes by borrowing. 
If he really succeeds by this means and saves 
himself so as to pay all of his old liabilities, it is well, 
and nobody is the worse for his transaction, perhaps. 
But if he fails, as men who are driven to the 
necessity of borrowing at rates of interest above that 
established by law are pretty sure to do, then of 
course there will be only the less left for those 
whom he was owing when he effected the loan at 
such high rates ; in consequence of the loan he had 
made they are losers by the operation. 

ijg. III. Tarijf, for revenue. 

III. Tariff. A tariff is a tax imposed on articles 
that are brought into a country, across the national 
boundary, for sale and consumption. 



2 22 POLITICAL ECONOMY. 

It is first to be considered as a means of revenue, 
and then, in regard to protection. 

A tariff, for whatever purpose imposed, is an ob- 
stacle to freedom of trade between the citizens and 
subjects of different nations. 

Its only recommendation as a means of revenue, 
is the convenience of collecting it, and collecting it 
too, in amounts sufficient to answer the purposes 
and wants of government, without much complaint 
on the part of those who pay it. 

Without a tariff for revenue, the means to carry 
on the government must be raised by a direct tax 
on the people, or a tax on articles of home produc- 
tion. And in either case it is likely to be paid by 
the people, very much in proportion to their means, 
and hence many of them will complain. But if 
raised by a tariff, they pay their taxes when they 
buy their goods, and are not aware how much of 
their purchase money goes for the tariff, and how 
much for the intrinsic value of what they buy. 

1 80. Objections to it. 

To this method of raising a revenue for the gov- 
ernment — a tariff for revenue — Political Economists 
have been accustomed pretty uniformly, to urge two 
very serious objections, without, however, having 
ever yet succeeded in accomplishing much by their 
objections, namely: 



EXCHANGE. 223 

(i) It encourages extravagance in the govern- 
mental expenditures; the money comes indirectly 
from the people, and in such a way that no one 
really knows how much he pays, and consequently 
nobody feels it as he would if he paid it directly. 
Hence, the people are not apt to watch the appro- 
priations and expenditures of the government, so 
closely as they otherwise would. 

(2) The burden usually falls very unequally upon 
the people. When the revenue is raised by tariff, 
no man pays according to his property, or his in- 
come, but only and solely in proportion to the 
amount he consumes of the article that is taxed. 
Hence, it often happens that a poor man, by con- 
suming more of the article that is taxed, pays more 
of the taxes that go to support the general govern- 
ment, than the rich man. In fact, this inequality is 
almost if not quite an inevitable result, of a tariff 
for revenue. 

But it soon occurs to the statesman, that the tariff 
which the wants of the government make a ne- 
cessity, may as well be so arranged as to favor do- 
mestic industry, and promote the welfare of the 
people who are thus taxed. 

181. Effect of tariff on importations. 

Mr. Carey, (Harmony of Interest, 1856,) en- 



2 24 POLITICAL ECONOMY. 

deavors to show that a tariff for revenue has never 
produced enough for revenue, in any one instance 
when it has been tried. He also claims to have 
shown that more goods are actually imported under 
a high tariff, if it only be so adjusted as to be pro- 
tective, than under any tariff that fails of protection, 
however low. He draws from this, however, not 
the most natural and obvious inference that would 
be expected, namely: that ^'protection does not pro- 
tect,'' but rather that it does protect, and that, too, 
so effectually that under its influence the people of 
a nation can buy, notwithstanding the higher prices 
which it occasions, more than they could without it. 
People can buy only what they can pay for, and 
what they can pay for depends upon the amount 
and the productiveness of their own labor ; or what 
is the same thing, the amount of work they can get 
to do, and the amount of wages they can get for 
doing it. 

And this, it seems to me, is a sound and satisfac- 
tory inference. Under protection, domestic industry 
is so much more thriving and prosperous that the 
surplus, beyond domestic consumption, is so much 
greater than under a low tariff, as to create the 
greater demand for foreign productions. He de- 
pends upon two propositions for this inference. 

(i) Whatever is produced will be sold in ex- 
change for other commodities, excepting, of course, 



EXCHANGE. 225 

what is needed by the producers themselves for 
their own immediate consumption. 

(2) The amount which we import from foreign 
countries, after correcting for variations in the bal- 
ance of trade, is an indication of the thrift and pro- 
ductiveness of labor at home. 

There can be no doubt that the greater the 
amount of the products of labor in any one year, 
year by year, the greater will be the amount of 
domestic exchanges ; that is, the greater will be the 
amount of purchases and sales of the people them- 
selves, one with another. And so long as there are 
objects of foreign production which the people want, 
the greater the amount they may have left after 
purchasing the articles of domestic production which 
they must have, so much the greater will be the 
amount of those foreign products that will be in 
demand, to act as stimulus to the enterprise of the 
importers. 

But an increase of imports, so long as there is an 
increasing balance of trade against us equal to the 
increase of imports, is no indication of thrift at 
home. With this caution, it seems to me that Mr. 
Carey's facts, and his inferences from them, are well 
made out and eminently worthy the attention of the 
statesmen and legislators of our country. 



15 



226 POLITICAL ECONOMY. 

182. What makes a tariff protective. 

A tariff, to be protective to any particular form 
of industry, must, of course, always be equal to the 
difference between the rate,, at which the commodity 
■ can be produced in the country of its production,, 
and that at which it can be produced in the country 
of its consumption. Thus, if cotton cloth can be 
produced in England, and sold, after cost of trans- 
portation here,, for ten cents per yard^ and it cannot 
be produced here for less than twelve,, two cents per 
yard would be a protective tariff,, and anything be- 
low that could not operate as protection ; above 
that, it would be,, virtually, prohibition, 

i8j. Effect of a tariff that is below protection. 

A tariff that falls below the point at which it is 
protective, cannot fail to increase the price of the 
article to the consumer ; for it would raise the price 
of the article by the amount of the tariff,, without 
creating a^iy competition among domestic producers^ 
so as to reduce the price, by means of their compe- 
tition, one with another. 

Or again, a tariff upon articles, that for any reason 
a nation cannot produce, as for example, cotton in 
England, would only enhance the price to the ex- 
tent of the tariff, and for the same reason, as a 



EXCHANGE. 227 

*^ revenue tariff/' as it is sometimes called, would 
raise prices there permanently. There are, or can 
be no domestic producers to reduce it by competi- 
tion, (i) among themselves, or (2) with the foreign 
producers. 

A tariff then, upon articles which we cannot pro- 
duce, or a tariff that fails to be protective upon 
what we can produce, but does not, only increases 
the price of the article to the consumer. 

And even a tariff for protection, if it be needed 
at all for that purpose, will raise the price of the 
imported article for the time being. But if it be an 
article which the laborers of that country can pro- 
duce to advantage, the tariff will have the effect of 
creating an increased demand for labor, and thus, by 
raising the price of labor in all branches of industry, 
it will enable the people of the country generally to 
buy the article more easily than before, even at the 
advanced price, 

18^. Limits within which pi'otection is possible. 

And here, I think, we have a hint at the limits 
within which protection by way of tariff can be good 
statesmanship for any country. Protection for its 
own sake, and with a mere vague notion of doing 
good somehow, is but an idle fancy of a not very 
clear brain. 



228 POLITICAL ECONOMY. 

A protective tariff on what cannot be produced is 
almost a contradiction in terms. But a tariff with a 
view to protect what can be produced only at great 
disadvantage, will be an unnecessary tax upon the 
industry of the surrounding country ; for the reason 
that it takes so much more labor to produce the ar- 
ticle in the one country than in the other. 

But the test is the amount of labor — not the 
wages, or the cost of the labor. 

Thus, for example, I suppose we might in this 
country construct square miles of hot-houses, and 
raise all the coffee we have occasion to use. But it 
would be a very costly process. It would require a 
very high tariff to protect that kind of industry. 
And it would be very bad policy; for although it 
it would diversify industry and raise the wages of 
the laborer, it would nevertheless be an unremuner- 
ative tax upon the industry of the country. It 
would be, to a large extent, money thrown away. 
It would take, perhaps, ten times as much labor to 
build hot-houses and raise the coffee as it would to 
earn the money and pay for the article at the price 
at which it could be imported, and hence, if I am 
right in estimating the proportion, about nine-tenths 
of the labor of raising the coffee at home would be 
a total loss to the world ; the men who were 
engaged in performing the work might as well have 
been idle nine-tenths of the time, or nine out of ten 



EXCHANGE. 229 

of them idle all the time, as to have engaged in 
making the preparations for raising coffee under 
such great disadvantages of natural position, 

18^, Lisfs Doctrine. 

Mr. List, in his work on National Political Econ- 
omy, has shown, as it seems to me, that there are 
three stages in a nation's history, in reference to the 
policy of protection. In the first stage, when the 
people are but few, capital scarce, and land plenty, 
protection cannot effect any good result A tariff 
merely taxes the people to no purpose. But, as 
soon as the people become more numerous, and cap- 
ital has begun to accumulate, they will need to di- 
versify their industry, by the introduction of manu- 
factures, and for this, most likely, some well adjusted 
scheme of protective duties will be necessary. This 
constitutes the second stage. The third occurs, 
when the nation has become so rich, so densely pop- 
ulated, that there remains no new form of industry 
to be domesticated, and no fear of evil from compe- 
tition with other nations. In this stage, a protective 
tariff will be a mere dead letter. There will be but 
little importation of what the nation can produce, 
and there can be no importation that will lower the 
price of commodities, whether we regard those im- 
ported, or those of domestic production. In the 



230 POLITICAL ECONOMY. 

first stage, therefore, protection is unavailing, and si 
damage. In the second, it is effective and bene- 
ficial. But in the thirds it is- ttnavailing and useless^ 
a mere dead letter on the statute books. 

The fact, however, that a protective tariff raises 
the money price of the protected article at first, and 
for a time is only a prima facie objection to such a 
tariff,, at most. 

1 86, Protection and national independence. 

The general reasons for protection may be 
arranged under three heads. 

(i) No nation can be independent of another that 
does not produce all that it needs for consumption. 
Give any nation, however small, the exclusive power 
to manufacture gun-powder, and you will make that 
nation the mistress of the world. The same is true,, 
though to a less extent, of every other article, that iSy 
as is felt to be a necessity of life. 

It is sometimes said that this would be a means 
of keeping nations at peace. And doubtless so it 
would, to some extent. It would not, however, be 
the peace of equality and right; but the peace 
rather that comes from the uncomplaining, unresist- 
ing submission of the weaker to the stronger. 



EXCHANGE. 231 

/<?7. Diversification of industry. 

^2) The second fact is, that no community can be 
thrifty without a diversification of labor; and, as a 
general rule, the greater the diversification of labor, 
the greater the number of productive employments, 
the more nearly do we reach the condition of the 
greatest thrift, namely, the greatest industry of the 
greatest number. 

Thus, if all the people of a country are agricult- 
urists, agricultural labor and agricultural products 
will be very cheap in their money value, and all 
other things will be very dear in their labor value, 
however cheap in their money value. Hence the la- 
borers will be able to buy but little, however much 
they may have to sell 

If then a nation be so situated, that a protective 
tariff is necessary as a means of introducing manu- 
factures, or any new form of productive labor which 
it is desirable to have, there can be no doubt of the 
wisdom of such a measure, provided, the new form 
of industry is one that is so well adapted to the 
people and the country, that when once introduced, 
it can be carried on with profit, and without con- 
tinued protection. 

188. Free trade reduces the wages of the laborers. 

(3) The other is the fact that free trade between 



2S2 POLITICAL ECONOMY. 

nations will sooner or later bring the price of labor 
— -wages — to the same level the world over, and that 
level will be the lowest figure to which tyranny and 
misgovernment can reduce the laborers anywhere.. 

Equality in skill, machinery, and other facilities, 
for manufacture, are so nearly within the reach of 
all nations, that we may consider them equal every- 
where. The facilities for transportation are so great,, 
that the cost of transportation has become an ex- 
ceedingly small per cent, in the cost of all the most 
valuable articles we produce. 

Hence with free trade we bring all the most valu- 
able articles into competition in the one great com- 
mercial centre of the world. The producers of the 
, raw materials, wherever they are, must bear the cost 
of transportation thither, and if they are consumers 
too, they must bear the cost of transportation of 
whatever they consume, back from the place of 
manufacture to themselves. And he who can hire 
labor the cheapest, can of course, other things being 
equal, make himself the commercial centre and drive 
all other competitors out of the market, and thus 
control the market of the world. 

i8(). The evil effects of low wages on the laborers. 

It is sometimes argued that this reduction in wages 
would be no calamity, because if wages are low. 



EXCHANGE, 233 

other things will be low, and the laborer is as well 
off as if they were high. 

But we must remember, 

(i) That the value is created by the labor of 
manufacture at any rate, and if the laborer does not 
get it, the capitalist will. Hence the lower the 
wages the faster the capitalists get rich, and the 
greater the difference in point of wealth between 
them. 

Suppose, for example, a bale of cotton worth 
fifty dollars is manufactured into goods that are 
worth five hundred dollars, four hundred and fifty 
dollars of wealth have been created by the labor 
and capital combined. Now it is perfectly obvious 
that the more of this the laborers get as wages, the 
less will be left to the capitalists as profit ; for the 
two together will equal the total increment, which 
in this case is four hundred and fifty dollars. 

(2) Again, the price of labor is always fixed by 
the competition at a commercial centre that is near 
by ; and the same is true of all the coarser articles 
we have occasion to use. Hence it is undoubtedly 
true that they always tend to regulate themselves to 
each other. But the finer and more valuable articles 
will always bear a price that is fixed by a much 
more remote centre, and will therefore show little 
or no tendency to regulate themselves to the wages 
of the laborer, especially in those localities where 
the wages are the lowest. 



234 POLITICAL ECONOMY. 

But the finer and more costly articles constitute, 
not only the luxuries and articles of vertu for the 
rich ; they constitute a large share of the conven- 
iences, and even the necessities of life; convenient 
and necessary for rich and poor alike ; they include 
tea and coffee, the drugs and medicines used in sick- 
ness, as well as the clothes needed for decency on 
festival and gala days, and are desired as much by 
the poor, who can afford such things only on rare 
occasions, at most, as by the rich who can have 
them all the time. 

(3) There are some commodities which we all 
want, whose price is not determined by the average 
cost of reproduction — which is of course always to 
be measured by labor, and consequently by wages, 
and therefore varies with them — but by supply and 
demand. Hence'the lower the rate of wages, the 
more completely out of the reach of the laborer are 
all this class of means of enjoyment and culture. 

Suppose two men, one poor and the other rich, 
one with an income of three hundred dollars per 
year, and the other with one of ten thousand. Each 
of them has a son or daughter that he wants to ed- 
ucate. Books, board, tuition, etc., if of the same 
grade, bear the same price. Or if they both wish 
to travel by railroad, canal boat, or stage, to see a 
distant friend, or bury a deceased parent, the ''fare" 
is the same for each, and nearly every item of cost 



EXCHANGE. 235 

is the same, and by no means proportioned to the 
income of the purchasers. What costs the poor 
man one-tenth of his annual income, may cost the 
rich man one-thousandth part of his. And this is 
the case, chiefly and especially, with those things 
which are the means by which the poor man can 
rise in the world. 

Or suppose again the fees of a distinguished sur- 
geon are, for certain services, one hundred dollars. 
This is but one-twentieth of the income of a man 
who has two thousand dollars a year. It is one 
tenth of that of him who has but a thousand a year, 
and one-half of his who has but two hundred, and 
quite out of the reach of the poorer men in the 
community. 

In the same way if a man wants to take a journey, 
to educate his children, to buy a book, or any other 
article of general or universal value, its cost is 
a definite sum, the same in amount, indeed, to all, 
but a greater or less proportion of his income ac- 
cording as his wages are high or low. 

(4) The higher the wages of the laborer the 
faster he can accumulate capital and rise above the 
condition of a mere laborer, provided, of course, his 
wages are such that he can save anything after pay- 
ing for the minimum of food and clothing that can 
be made to supply his wants. In fact any one who 
is sufficiently resolute in his determination to accu- 



236 POLITICAL ECONOMY. 

mulate something, can and will save all of his wages 
that are in excess of that minimum. Suppose that 
minimum is twenty-five cents a day, and the wages 
of one man are fifty cents, and those of another 
seventy- five cents per day, the latter will be able to 
save money twice as fast as the former. 

igo. Beneficial effects of the higher inanufactures. 

There is another important fact bearing on the 
two systems, free trade and protection, which ought 
to be considered. It relates to the promotion of 
both the thrift and the intelligence of the people. 

A protective tariff" is neither needed or justifiable, 
except when it is required to diversify labor and 
give increased occupation to the people by introdu- 
cing the higher and more costly manufactures. 

This is abundantly illustrated by facts in our own 
country. All the finer cottons and woolens are 
manufactured in the eastern States, New Hampshire, 
Rhode Island, Massachusetts, etc. In the western 
States only the coarser goods are manufactured ; 
the cost of transportation is a large per cent, of the 
cost of the cheaper goods, and a small per cent, of 
the cost of the finer ones. Hence, for the western 
States, the cost of transportation is an effective pro- 
tective tariff against eastern competition on all the 
coarser goods. 



EXCHANGE. 237 

But it is so small a per cent, of the cost of the 
finer goods, that these are not manufactured there 
at all. And the difference in the distributive wealth 
of the people of the two respective portions of the 
country will not be, I suppose, a matter of question 
with anybody. 

And in another point of view, their production is 
essential to the highest welfare of the nation. 

(i) They require and imply the highest skill and 
the most refinement of taste in their production. 
Hence their manufacture not only implies, but it also 
encourages and promotes, the culture of the people ; 
they must be more intelligent and refined in order 
to carry on these forms of industry successfully and 
efficiently. 

(2) Again, it is precisely these higher manufac- 
tures in all civilized countries that utilize the forces 
of nature to the greatest extent, and thereby making 
them work for us. They make our labor day for 
day the more efficient, and of course, therefore, and 
just to that extent, the more productive of value ; 
or, what is the same in effect, the kind of labor that 
enriches a nation the fastest, the manufacture of the 
finest goods, must either be left to savage and mere 
semi-barbarians, where wages are the lowest — almost 
nothing — or carried on by the most highly civilized 
and the richest people, with the greatest distributive 
wealth, where the use of machinery has been made 
the most effective in saving human labor. 



23S POLITICAL ECONOMY. 

Let any foreign manufactured articles drive our 
domestic manufactures out of existence, one after 
another, and our people will be obliged to become 
agriculturists. Without manufactures to give added 
intrinsic value, they would then have to pay the en- 
tire cost of transportation, both of their raw mate- 
rial, as cotton, and of their food, as grain and meat, 
to the place where both are manufactured into the 
articles we ourselves need for the supply of our 
wants; the one, manufactured by the loom into 
cloth, the other, by digestion and assimilation, into 
the bones and muscles of the laborer, who spins and 
weaves it 

And thus, everything we might have to sell, 
would be low-priced ; and everything — or nearly 
everything — of foreign manufacture, all our finer 
and better articles, would be high-priced : we should 
be compelled to sell cheap, and buy dear. 

1 01^ Free trade only with free laborers. 

If, however, we could remove all restrictions, ed- 
ucate those that are immersed in ignorance and 
barbarism, and obliterate all hereditary monarchies 
and aristocracies, making the laborers as free as 
trade, the law of supply and demand would un- 
doubtedly bring all things, labor, capital, skill and 
stupidity, industry and idleness, extravagance and 
economy, profligacy and frugality, each to its proper 
level. 



EXCHANGE, , 239 

But until these conditions are fulfilled, free trade, 
with the unfree laborers of the old-world, must bring 
our laborers down to their level — it cannot raise 
them to ours, or labor anywhere, to its proper equal- 
ity with capital. 

ig2. Dijference between British doctrine and Brit- 
ish practice. 

Political Economists have very generally advo- 
cated free trade. Politicians have quite often advo- 
cated a tariff for revenue, while statesmen have been 
found advocating protection under some one or other 
of its forms. Even in England, which is commonly 
regarded as especially devoted to free trade, free 
trade is not practiced any further than it suits the 
local national interests to practice it. That govern- 
ment imposes no '* protective tariff" indeed. Its 
writers and statesmen appear to have a great horror 
of such a thing. But it imposes "countervailing du- 
ties" upon every object of foreign production which 
is likely, by its importations, to interfere seriously 
with any branch of industry, pursued by its own 
subjects, which it can protect. The English will ad- 
mit tobacco, for example, free of duty : they can 
raise none that is good for anything. But they im- 
pose a "countervailing duty," on cigars, snuff, and 
all the forms of manufactured tobacco, so great as 



240 POLITICAL ECONOMY. 

to preclude Importation ; they have a large amount 
of pauper population who can earn a living by 
manufacturing the tobacco, which they cannot raise, 
into snuff and cigars, which, with the tobacco im- 
ported, they can make. 

igj. John Stuart Mill advocates protection. 

Among the writers on Political Economy, how- 
ever, we find some advocates of protection. I will 
quote merely John Stuart Mill, and this I do, not 
only because he is confessedly the ablest and the 
fullest English writer on the subject, but also, and 
chiefly, because he is commonly supposed to be, 
like most of the English Political Economists, an ad- 
vocate of free trade. He says (Political Economy 
Book V, Chap., X, § I) : 

**The only case in which on mere principles of 
Political Economy, protecting duties can *be feasible, 
is where they are imposed temporarily (especially 
in a young and rising nation )y in hopes of natural- 
izing a foreign industry, in itself perfectly suitable to 
the circumstances of the country. The superiority 
of one count7y over another in a branch of produc- 
tion^ often arises only from having begun it sooner. 
There may be no inherent advantage on one part, or 
disadvantage on the other, but only a present supe- 
riority of acquired skill and experience. A country 



EXCHANGE. 241 

which has this skill and experience yet to acquire, 
may in other respects be better adapted to the pro- 
duction than those which were earlier in the field ; 
and besides, it is a just remark of Mr. Rae, that 
nothing has a greater tendency to promote improve- 
ments in any branch of production than its trial, 
under a new set of conditions. But it cannot be 
expected that individuals should at their own risk^ 
or rather to their certain loss, introduce a new inanu- 
facture, and bear the buj'den of carrying it on, until 
the producers have been educated up to the level 
of those with whom the processes are original. 

A protecting duty continued for a reaso7iable time, 
will sometimes be the least inconvenient mode in 
which a nation can tax itself for the support of such 
an experiment But the protection should be con- 
fined to cases in which there is good ground of 
assurance that the industry which it fosters will 
after a time be able to dispense with it ; nor should 
the domestic producers ever be allowed to expect 
that it will be continued to them beyond the time 
necessary for a fair trial of what they are capable of 
accomplishing. 

Shortly after Mr. Mill's death there appeared in 
the New York Tribune over the well-known initials, 
G. W. S., the following: 

"Presently he touched upon Free Trade, a subject 
which I rather dreaded: but I made haste to ask 
16 



242 POLITICAL ECONOMY. 

him whether he still adhered to the well knowTE 
statement in^ his Political Economy, which Protec- 
tionists were in the habit of quoting in their owr& 
defense : to the effect, namely, that Free Trade was 
not an absolute doctrine, but a question of circum- 
stances. ' Certainly ' was his answer^ ' I have 
never affirmed anything to the contrary. I do not 
presume to say that the United States may not find 
protection expedient in their present state of devel- 
opment. I do not even say, that if I were art 
American I should not be a Protectionist.' He 
added that he believed the best of Protectionists- 
held that doctrine as a temporary one, which they 
stood ready to exchange or modify^ when the coun- 
try should have proved itself able to compete with 
European manufactures," 

1(^4., Classes of persons that are not likely to 
favor protection. 

There are, however, certain classes of persons^ 
who, for one reason or other, are not likely to be 
persuaded into protection ; they are, 

(i) Salaried men who live on fixed means. Their 
income is fixed and does not vary with the fluctua- 
tions in price. Free trade would therefore reduce the 
price of many of the articles they have occasion to 
buy, without reducing at all the amount of their 



EXCHANGE. 243 

salaries; or at least, so they think, and .hence free 
trade is to them virtually an increase of salary, to 
quite a per cent 

(2) For the same reasons, rich persons, whose 
money is to a large extent or wholly invested in 
government stocks, banking, etc, where the rate of 
interest is regarded as independent of the price of 
the ordinary commodities of consumption. Free 
trade is for them the same in effect as an increase of 
interest, or the per cent, of the dividend on the 
stocks they own. 

(3) Merchants, brokers, bankers, etc., especially 
in seaport towns. Their business consists in trade, 
and to a large extent in foreign trade, and as their 
profits are a per cent on their capital, and vary with 
the amount of business, they will advocate the 
policy that produces the most business in their line, 
free trade. 

(4) All those persons whose business is such as to 
allow of no foi^eign competition. Of this class, 
perhaps newspaper proprietors are the best illustra- 
tion. The New York Herald, Times, Tribzine, 
World, etc.^ could no more be made, pri^nted, and 
published in England, and brought here for sale, 
than coal be mined in New York, or cotton raised 
in London. They must be made here — written 
mostly, set up, worked off here, in order to be 
ready for distribution while they are fresh and new. 



244 POLITICAL ECONOMY. 

But free trade with foreign countries would reduce 
the cost of paper, ink, articles of most or all kindSy 
the cost of the labor of the office also, and that too^ 
without any reduction in the price at which the pro- 
prietors of such papers can sell them ; or possibility 
of rivals made in London or elsewhere, where labor 
and materials are cheap. 

ig^. Political motives that may oppose it. 

Perhaps to these we ought to add a fifth class^ 
(and I fear there are such in our country) ; I mean 
all those who believe that an aristocracy of wealth 
or power is the best form of goverment, or who at 
least desire such an one for our country. For the 
effect of free trade with foreign nations, by reducing 
the wages of the laborer, would of course raise up 
a wealthy few and reduce the many to such poverty 
and dependence, that they would be powerless 
against their richer neighbors, and without hopes or 
possibility of rising to education, wealth, and means 
of influence. 

Such a result might not follow in all countries, 
and under all circumstances. But there can be no 
doubt, I think, that it would follow in any country, 
where the wages of the laborer is higher than the 
average rate in those countries with which it would 
thus be brought into commercial relations. The law 
of competition will effect this. 



EXCHANGE. 245 

rg6. Probability of the cojttinuance of protection in 

America. 

Not long since a distinguished professor of Po- 
litical Economy from England, lecturing in New 
York, in advocating free trade, remarked that it 
seemed to him that protection in this country was 
taxing "the many in the interest of the few; taxing 
all the citizens of our country to support the mines 
of Pennsylvania and the factories of New England. 
This may be so. But if it is, then free trade will 
surely result in the breaking down of the miners of 
Pennsylvania, and the manufacturers of New Eng- 
land, to build up the capitalists of Great Britain. 
Well, — blood is thicker than water, and I rather 
think that so long as we must have a tariff for rev- 
enue, the laborers of our country will insist that it 
shall be so adjusted as to protect American industry, 
rather than foreign capital 



CHAPTER VIII. 



OF MONEY AND BANKING. 

Traders between producers and consumers — Money the means of 
exchange — Theories of money — Gold and silver a part of the 
wealth of a country — What determines their value — Useful for 
other purposes than coin — Proof of this view — Reasons for 
using them- for coinage — Signification of coinage — Effects of 
increase of gold and silver — Labor, not money, the standard of 
value — Importance of this view — Market value determines the 
coin value of silver and gold — Money and trade, how they 
enrich — Trade enriches individuals — Banks, (i) as places of 
deposit— Banks, (2) as places of exchange — Saving of labor 
thereby — Clearing houses — Banks, (3.) for discount and loans- 
— Banks, (4) for issue of bills — Paper currency saves loss — 
Less specie needed — The process of banking — The bankers'" 
resources — Loan of the deposits — The nature of the "loans 
and discounts" — Loans deposited — Necessity for a specie basis- 
— The effect of redemption — Ratio of specie to loans and dis- 
counts — Limit to a bank's "circulation" — How banks cause 
fluctuations in prices — Return to specie payments after suspen- 
sion — Ratio of specie to circulation in this country — The effects- 
of over-issue — How money differs from other commodities — 
What determines the amount of paper — Banking compared 
with other "business" — How determine the amount of paper 
needed — How determine the amount of specie — Governments 



MONE Y AND BANKING. 247 

cannot control the amount — How gold and silver affect the 
amount — Why no more is coined — Effects of inconvertible 
paper — A practical test proposed — How money gets into cir- 
^culation — Paper not convertible on demand — Premium on gold 
determined by the ratio of gold to paper. 

7p7. Traders between producers and consumers. 

I have thus far spoken of exchange as if con- 
ducted by the producers and consumers without the 
intervention of any third party, and as though it 
were an exchange of the simple commodities them- 
selves. But neither of these conditions often occur. 
For the most part there is a class of traders interven- 
ing ; and the commodities are sold and bought for 
some ''circulating medium," as it is called, w^hich is 
considered as money. 

igR, Money the means of exchange. 

Of the utility of both money and a class of trad- 
€rs, as indirectly increasing wealth, by facilitating 
exchange, there can be no doubt. The man who 
has a crop of wheat to sell, can deliver it all at one 
place, and take the money for it ; this he can carry 
with him, and use in purchasing other articles. 
Otherwise he would be obliged to part with a por- 
tion of his wheat to one man in exchange for what 
he might happen to want to purchase of him, and 
another portion to another, and so on. 



24S POLITICAL ECONOMY. 

We have shown in previous chapters, and under 
several different heads, how traders by diminishing 
the necessary labor of exchange, add indirectly to 
the aggregate and distributive wealth of a commu- 
nity. 

In any civilized country some exchanges, besides 
those that can be made immediately between the 
producers and the consumers, are necessary also. 
And one man can make the exchanges for a large 
number of persons, with about the same labor, time, 
and capital, as for a much smaller number. But he 
needs some means, implements, or "tool" with 
which to do it ; this tool, or implement, is money. 

i<^g. Theories of money. 

Of money there have been several theories, 
David Hume, who, so far as I recollect, was the 
first to treat of it in a professedly scientific way, 
evidently regarded money as constituting the only 
wealth, or element of wealth in a community. But 
this is manifestly wrong ; as every product of labor 
remaining over and above what is consumed in the 
process of producing it, is a part of the wealth of a 
nation, or the world at large. And that which is 
not money, is often more useful than money itself 

A more recent theory holds that money is no 
part of wealth, but is only a representation of value; 



MONEY AND BANKING. 249 

a certificate, in the language of Bastiat, "that the 
bearer has rendered to society services equivalent 
to the amount of the silver he holds, etc.," for which 
he has received no pay. 

200. Gold and silver a part of the wealth of 
a country. 

But manifestly gold and silver are a part of the 
wealth of any community, though, not as the earlier 
writers seem to have supposed, the whole of it ; they 
obey the same laws, for the most part, as other 
commodities. In a state of nature, and before the 
approach of man, they have no exchangeable value ; 
they are produced by labor, and the quantity which 
can be obtained per day on the average, determines 
their exchangeable value, as truly and rigorously as 
this law of production determines the exchangeable 
value of any other commodity. 

201. What determines their value. 

This results from the law of supply and demand. 
If a man wants silver and gold, no matter what for, 
he will go to digging, if by that means he can get 
in a given time the amount of those metals he wants, 
and in the form in which he wants them, by the 
least amount of labor. But if he can get more of 



2 50 FOLITICAZ ECONOMY. 

them In that form In the same time, and with the 
same labor, by raising wheat, cutting logs, making 
or laying brick, he will resort to these forms of In- 
dustry and trust to the possibility of exchanging 
the commodities he will thus produce for the gold 
and silver he wants, but does not produce. 

202, Useful for other purpose than coin. 

And In this respect It makes no difference what 
one may happen to want the gold and silver for. 
They have a use for other purposes than as a circu- 
lating medium. This Is an Important, a controlling 
fact ; but It Is one that is often overlooked. And it 
Is their Intrinsic value for other purposes that, 
together with the average labor required for their 
reproduction, determines their market price, and the 
amount that shall be put Into coin of any particular 
denomination, as a dollar, a franc, a sovereign, an 
eagle, etc. For suppose that an ounce of silver and 
a sixteenth of an ounce of gold are ordinarily worth 
one dollar, that is, assuming the dollar to be a con- 
stant value. If gold and silver increase in quantity 
more rapidly than the aggregate wealth, the supply 
Is greater, probably because the average cost of re- 
production is less, and more of them must go to 
make a dollar. t 

If they become scarcer, It is because of a change 



MONE Y AND BANKING. 2 5 1 

in the labor cost of reproduction, and the dollar 
must weigh less, or it will be worth more. 

• 20J. Proof of this view. 

To test this, suppose gold and silver have become 
more abundant, and by the law of supply and de- 
mand, cheaper than formerly ; the farmer, for ex- 
ample, will not sell his wheat for the same amount 
of gold and silver, as before. He will demand more. 
This will be indicated, indeed, as a rise in the price 
of wheat. It is more properly, a decline in the 
price of silver and gold. Or, on the other hand, 
suppose that gold and silver become scarce — the 
coin will be sought and used in the manufacture of 
gold and silver ware — they will rise in price, and 
nobody will pay them out for ordinary commodities 
except at a reduced nominal price of those com- 
modities. 

In such cases, the commodities are usually said to 
fall in value. But it is more proper to say, that the 
gold and silver have risen in price. 

20^. Reasons for using them for coinage. 

It is undoubtedly true, however, that gold and 
silver, besides being otherwise the most convenient 
things to serve as a means of exchange, are also 
more nearly uniform in their average cost of repro- 



252 POLITICAL ECONOMY. 

ductlon, as well as in intrinsic value, than any other 
commodity. Hence, we have in general, five pe- 
culiarities by which they seem to be better qualified 
than anything else, for the use of exchange. - 

(i) They are of more nearly uniform intrinsic 
value. The gold and silver of different mines are 
of the same quality. 

(2) They condense an amount of exchangeable 
value within a small compass, larger than almost 
anything else. 

(3) They are more nearly uniform in exchange- 
able value, than any other available commodity ; it 
taking about as much labor to get them from the 
mines in one age, as in another. 

(4) They are more easily coined into convenient 
forms than anything else, that is valuable enough 
(per pound) to answer the purpose. 

(5) I add a fifth. Such is their nature, that the 
process of coining them, or manufacturing them into 
money, does not, in the least, injure or impair their 
intrinsic value for other purposes. In most cases, 
on the contrary, the manufacture of a material into 
any one kind of article, ruins and spoils it for all 
others. 

20^. Significance of coinage. 

Coining is generally, — always, in latter times — 



MONEY AND BANKING. 253 

done by the government. And this is in order to 
prevent abuses. The objects and significance of 
coining, may be referred to two heads ; the im- 
pression stamped on each piece, is a certificate of 
two facts. 

(i) That the piece so stamped, has a certain 
weight, — and thus the coining saves the necessity of 
weighing every time an exchange is made. 

(2) That the piece is of a given purity; this is 
important, for, being alloyed with cheaper and baser 
metals, it might have the same weight as another 
piece, and yet be of a very inferior value. 

206. Effects of the increase of gold and silver. 

It would be easy to trace the history of money, 
and show how, in every case, (i) any increase in the 
aggregate wealth, without a corresponding increase 
in the quantity of the precious metals, has resulted 
in an increase of their price, and, (2) how any sud- 
den increase in their quantity, as by the discovery 
of new mines, has resulted in their decline in price, 
or, which is the same thing, and a more adequate 
expression of it, — there has been a rise in the price 
of all other things. 

2oy. Labor, not money, the standard of value. 

Money itself, then, being the product of labor, 



2 54 ■ POLITICAL ECONOMY. 

obeys the law already laid down. An ounce of 
silver, if that be the quantity we call a dollar, is the 
product of the labor expended in mining, coining, 
etc., that piece of silver, and must depend for its 
value, upon the average cost (labor) of reproduction. 
If a new mine should be discovered, and if new 
means for mining, etc., should be invented, so that 
an ounce of silver could be obtained by one half the 
labor it now costs, and that, too, in an unlimited 
quantity, the price of all things would rise — if we 
should still continue to make silver the standard — 
in nearly the same proportion ; the fact would be 
that silver had become cheaper. 

** Writers usually put the intrinsic value of the 
precious metals as measured by their purchasing 
power, in the reign of Henry VIII, or about three 
centuries ago (A. D. 1509 — 1547) at twelve times 
greater than now. But for want of a standard to 
measure the intrinsic value, or labor cost of the 
metals themselves, there is no proof of any tolerable 
exactness in the estimates that are made, even by 
the most capable persons, of the change of value of 
an ounce of gold or silver, after the lapse of cen- 
turies. And, if difficult for long periods, the rate 
of the process from day to day, or from year to 
year, is no less so, though of less moment. But 
the general fact is indisputable, that gold and silver 
have grown several times intrinsically cheaper, than 



MONE V AND BANKING. 1 5 5 

they were before the discovery of America, by Co- 
lumbus." (Elder, Q. of Day, pp. 113 — 114.) 

But labor is a constant. It is the product of time 
into human strength. Now the strength of men 
varies undoubtedly, if we compare man with man, 
at any time or in any place. But the average 
strength of men, in one age or place, is so nearly the 
same as that of any other time or place, that we 
may, for all our present purposes, assume it to be 
the same. Hence strength is a constant quantity. 

Time is, of course, measured by the revolutions 
of the earth, and a day is twenty-four hours, the 
number of hours out of the twenty-four during 
which men can labor, however much it may vary if 
we compare individual cases one with another, 
affords, nevertheless, a constant average ; the men 
of to-day, and of this country, can work just about 
as many hours a day, on the average, as those of 
any country or age. Hence time for labor is a con- 
stant quantity. 

And with these two, labor will vary ; two men 
unequal in strength, will perform equally dispropor- 
tionate amounts of labor in a given time. Or, two 
men of equal strength will perform different amounts 
of labor in unequal times, the difference varying as 
the time. But at this average they become constant, 
that is, when men work all the time they can and 
with all their strength. We have the formula, 



2s6 POLITICAL ECONOMY. 

TxS = L 

and 

TdS-\- SdT=dL 
that is, time multiplied into strength gives the 
amount of labor. And as the time of labor and the 
strength with which men can labor, are both, when 
at their average or at their maximum, in fact, con- 
stant, the product is constant, and we have in that — 
which nothing else can afford — a constant standard 
of value. 

208. Importance of this view. 

To this everything, gold and silver no less than 
wheat, iron, cloth, etc., must conform ; and they be- 
come really cheap or dear, cost much or little, just 
as they can be obtained with much or little labor. 
Hence it is that we never know whether a laborer 
is in a good condition merely by knowing the 
amount of his wages in gold and silver. We want 
to know what the means of living cost, bread, fuel, 
clothes, house rent, etc., how much of these he can 
obtain for a day's work, or a week's work ; for the 
days and weeks of a year are limited, and in each 
the year comes around with the vicissitudes of sum- 
mer and winter, seed time and harvest. 



MONEY AND BANKING. 257 

2og. Market value detennines the coin value of gold 

and silver. 

There is qvl^ more consideration of great impor- 
tance bearing upon the coin value of silver and gold. 
Being in demand for other purposes, and being not 
at all injured for other purposes by coinage, if the 
coin contains more silver than can be bought in the 
ingot for its price, say a dollar, the manufacturers 
will buy up the coin and melt it over for the manu- 
facture of their wares, until the coin is all bought up, 
or has risen in price on account of the scarcity thus 
created. Or on the other hand, suppose the coin 
contains less silver than can be bought in the ingot 
for the same money, the coin is below par, no one 
will take it in payment except at a discount, and 
then, of course, it is driven out of market as uncur- 
rent. The same is true, of course, of gold. 

Hence we see that coin cannot be kept in circula- 
tion unless the quantity in a dollar, for example, is 
equal to what can be bought in the mass, for a dollar 
of other money, or a dollar's worth of any other 
commodity, labor itself included. 

210. Money and trade, hozv they enrich. 

In this view of gold and silver I think we find an 
ample justification for the assertion that they are 
17 



258 POLITICAL ECONOMY, 

like any other product of labor, a part of the wealth 
of the community, and cannot be regarded as the 
entire wealth, nor yet as mere representatives of 
wealth. The man who has received a piece of silver 
or gold for his work, has received his pay in full, as 
truly and as completely as if he had received any 
other commodity, article of food or clothing. 

And the view taken of traders in these lectures 
differs as widely from the more prevalent ones as 
it does in regard to money. It is very commonly 
thought, that because the richest men in a commu- 
nity are usually found among traders, and because 
commercial cities are the wealthiest, therefore, it is 
trade and the traders that make the wealth of a 
community. Exchange is indeed indispensable to- 
wealth, and a class of traders is useful as a help to- 
making the exchanges; but traders, as we have 
seen, neither produce the quantity, nor increase the 
intrinsic value — the two factors whose product is the 
wealth of a community. 

211, Trade enriches individuals. 

Trade, however, conduces more than any other 
kind of business to that unequal distribution of 
wealth which rises into view, in the form of great 
fortunes — to be counted by millions. And there- 
fore it is that it holds out special inducements to those 



MONE V AND BANKING. 2^-9 

who are anxious to grow rich rapidly, to amass large 
fortunes ; and therefore it is that trade is supposed 
to be the most efficient means of making money, or 
of increasing wealth, when in fact, it is least so of 
all, if we regard the welfare of the community, 
rather than the aggrandizement of individuals. It 
affords to individuals the most rapid means of 
amassing a fortune, while of the great branches, 
agriculture, manufactures, and trade, it is the least 
conducive to the increase of the wealth of the 
country. 

After the introduction of money, the next great 
agent for saving labor in making exchanges, is 
banking and banks. 

The Bank of Amsterdam, established A. D. 1609, 
was the earliest considerable institution of this kind 
which looked to the promotion of commerce among 
the people: its predecessors of the twelfth century 
in Venice and Genoa having been chiefly devoted 
to the management of state finances. This bank 
was guaranteed by, and under the authority of, the 
city. It continued to promote the prosperity of the 
city for nearly two centuries. It failed in 1790. 

Banks, or banking, as conducted in our time are 
for four distinct functions. 

212, Banks^ ( i) as places of deposit. 

Money being an object of almost, if not quite, 



26o POLITICAL ECONOMY. 

universal desire, and being also a commodity that 
can more easily than anything else be carried away 
and concealed, if once stolen, becomes an object of 
property calling for especial efforts to protect it 
against theft, burglary, etc. And it requires about 
as much labor and expense to provide for the safe 
keeping of a small sum, as for that of a large one. 
Hence a vault or repository, in which one man 
can take care of the money of several men, is likely 
to occur as a means of economy, at a very early 
day. The man who keeps it is called a banker, and 
the money left with him is said to be deposited. 

21 J, Banks y (2) as places of exchange. 

Suppose a dozen men employ the same banker 
to keep their funds. It is not necessary, when any 
one of them wants his money, or a portion of it, to 
make a payment to another, that he should actually 
go and take the money out of the bank and pay it 
over. A much shorter method is to give the payee 
a draft on the banker. The draft being taken to 
the banker, he will credit the amount to the payee 
and charge it to the payor, and the exchange is as 
truly made, without the handHng or counting of a 
dollar of the money, as it could be in any other way. 
The entries in the books miftt of course be made at 
any rate. But by this means millions on millions of 



MONEY AND BANKING. 261 

dollars of exchanges may be made without the labor 
of counting or handHng a single dollar of the money. 

21/p, Savifig of labor thereby. 

And, in fact, in all civilized countries, a large share 
-of the exchanges and payments are made in this 
way. Men that have occasion to handle much 
money, make their deposits in some bank, make all 
their larger payments in checks, and keep on hand 
only the amount of money that is necessary for the 
smaller balances, that are daily and hourly occurring, 
when it is necessary to effect a balance, pay a bill, 
or "make change," without the trouble of going to 
the bank 

21^^ Clearing houses. 

In towns and cities, where there are several banks, 
a bank for bankers alone, is usually established. 
This is sometimes called a "clearing house." 

So long as there is but one bank in a town, all the 
vnQVi who keep bank accounts at all, will have their 
deposits there. But, in case there are several, each 
business man will give checks on the bank he does 
business with. A, for example, gives B a check, 
but B has no business with A's banker. He takes 
the check to his banker. Hence a necessity for the 



26i POLITICAL economy: 

bankers themselves to exchange with one another ; 
this is usually dane every day after banking hours.- 

216. Banks, (j) for discotint and loans. 

It is manifest that if millions of dollars of ex-^ 
changes can be made without handling the coin,, 
they could be n>ade, a large part of them at least,, 
just as well if there were no corn in the vault at alL 

But let us now take a different starting point ; let 
us suppose that a man who has capital (money) ta 
lend, starts a bank. He can, not only keep the 
money of other persons on deposit with his own, and 
make their exchanges for them ; but besides all this 
he can lend money of his own to those who may 
have occasion to borrow. 

Nor is this all. He can lend, also, a part of that 
which he has on deposit. After a short time he will 
find out about how much comes in, on the average,, 
per day, and, of course, also how long,, on the aver- 
age, each dollar remains with him, and how much 
on the average, he has on hand at a time. Now 
suppose he should find that he has^ on an average,. 
a hundred thousand dollars on deposit, and that, on 
the average, each dollar remains with him twenty 
days, it is manifest that he can lend seventy or eighty 
thousand dollars of that which he has on deposit^ 
for short periods— -anything less than twenty days — 



MONEY AND BANKING. 263 

and yet always be able to meet the drafts that may 
iDe. drawn upon him by the depositors — always I 
say — except when the day of winding up operations 
comes. He must cease making loans before that day 
arrives, in order to prepare for its arrival 

21J. Banks (^) for issue of bills. 

But we have another expedient still, affecting the 
business of banking, and of making exchanges 
thereby, namely, the issue of bills or bank notes. 

Gold and silver, in large quantities, are heavy, 
and inconvenient, besides being attended with risk 
and loss. Hence, several consequences. 

(i) In the first place^ drafts on banks, are likely 
an themselves, to pass from hand to hand for some 
time, as representatives of the money that is on de- 
posit in the bank. This the customers themselves 
will do, rather than take out the money itself, and 
carry it about with them, 

(2) But, in the second place, the banker himself 
may issue his bills, provided he has capital of his 
own. In this case, instead of keeping the money 
deposited by each customer, separate and distinct, 
he counts it, places it to the credit of the depositor, 
and when he calls for it, gives him his own bills; 
that is, pieces of paper on which is written, or 
printed, or both, a promise to pay a given amount 



264 POLITICAL ECONOMY. 

on demand, at the banking house of the banker 
who issues it. 

And this paper ''currency" is — as gold and silver 
are not — a mere representative value. As such, it 
circulates so long as the credit of the banker is- 
good, and does the work of money quite as effi- 
ciently and more conveniently than coin itself could 
do. 

218, Paper currency saves toss. 

(j) There is always some wear of coin in use — ' 
old coins become defaced. This is a complete and 
total loss, as much so as if a similar portion of gold 
and silver had sunk to the bottom of the ocean. 

(2) Again, some of the coin will be lost in the 
way last named. A ship sinks at sea ; a confla- 
gration takes place ; and in other ways coin disap- 
pears from the use of men. 

It has been computed that in these ways not less 
than one per cent, of the coin actually in use is lost 
annually; this, as we have seen, is nearly half as 
much as the rate of interest in some of the more 
wealthy nations of the world. , But^ 

(3) There is also safety to the individual himself 
in having paper that will ^serve in making his ex- 
changes, instead of coin. 

Suppose a man makes a draft, or holds a certifi- 



MONEY AND BANKING. 265 

cate of deposit, and that draft or certificate is lost, 
he loses nothing but the value of the paper on 
which it is written, nor does anybody. This is not 
true of ordinary bank-notes or bills payable to 
bearer ; but // is true of other forms of representa- 
tives of value, which one can always take, and with 
which we can make our exchanges without risk or 
loss. ^ 

2ig. Less specie needed. 

There is still another very important influence of 
banking considered as a process of making ex- 
changes. It enables the banker to make a large 
amount of exchanges with a small amount oi specie. 

We have seen that the banker can lend a certain 
portion of his deposits, so that that portion will be 
doing the work of making exchanges in that form 
also : and then it is actually doing double work ; 

(i) As (by supposition) in the vault, serving as 
the basis of the exchanges that are made ; by drafts 
emitted to the drawer and charged to the drawer ; 
and, 

(2) As actually in circulation, for so it becomes 
by the very act of lending it, that is, provided the 
loan is drawn out of the bank. 

220. The process of banking. 

To get at the whole matter at a glance, let us 



266 POLITICAL ECONOMY. 

suppose a man or a company begin banking with a 
capital, say of $100,000. And for the sake of 
simplifying our statement, let us leave out of sight 
all cost of banking house, fixtures, etc., etc. 

(i) He will need to keep a certain portion of his 
money on hand, as specie with which to redeem his 
bills when they are presented for redemption at his 
counter. 

An examination of the history of banks shows 
that the amount of specie needed in a country vil- 
lage will not be much, if any, over ten per cent, of 
the capital, or $10,000. In large cities, however, 
the proportion of specie must be larger, and in 
commercial towns it is often equal to the entire 
amount of the circulation, and is sometimes even 
greater. 

(2) The remaining $90,000 he can invest in 
stocks, bonds, and mortages, etc., bearing interest at 
the lawful rate, which is seven per cent, in this State, 
New York. 

(3) On this $90,000, however, he can issue his 
bills, which will circulate as money, or currency 
rather. These bills he loans, accepting for them 
notes, etc., on time, and receives also, either interest 
or discount on the notes, which he thus receives in 
exchange for his bills. 

The amount in bills that may be issued is often 
regulated by law. Thus under the old New York 



MONEY AND BANKING. 267 

system, as it was called, the bank was required to 
deposit its stocks, bonds, and mortgages, with the 
State authorities, and receive for them bills — not yet 
executed by the signatures of the bank officers — ■ 
equal in amount to the capital thus deposited, which 
in the case supposed would be $90,000. 

Something of the kind exists now under our 
United States banking laws ; that is, some limitation 
on the amount of bills a bank may issue, an amount 
proportioned to the capital or the deposits made to 
secure the redemption of the bills. But in cases 
where no such restrictions exist, the amount of cir- 
culation is limited only by the prudential consider- 
ations of expediency. Some years ago the amount 
limited by law, in one of the New England States, 
was double the amount of capital. And in some 
cases banks have been known to keep afloat three 
times the amount of their capital for some time. 

221. The banker's resources. 

Let us now consider the banker's resources. He 
has as means of redeeming his $90,000 of issue, 
(i) The $10,000 in specie reserved in his vault. 

(2) The $90,000 in stocks which can, of course, 
be converted into money. 

(3) The notes, etc., which he has discounted and 
in exchange for which he paid out his bills. 



268 POLITICAL ECONOMY. 

And thus with honesty and good capacity on the 
part of the banker, his bills to the amount of nine 
or ten times the specie on hand are entirely safe, 
and one dollar in money is made to be, or at least 
to do the work of ten dollars in making the ex- 
changes that are required in the business world. 
Of course all these estimates and proportions will 
change with localities, seasons of the year, and the 
kinds of business done in the community where the 
-bank is located. But our object has been to state 
and illustrate the principle rather than to give exact 
practical working figures, that one might depend 
upon in going into the banking business. These 
must be ascertained in each case separately, and on 
its own merits and peculiarities. 

222. Loan of the deposits. 

I have taken no note, in this discussion, of the fact 
that a large proportion of the deposits — the deposits 
ordinarily in our American banks — equal or exceed 
the amount of the capital as loaned by the bank. 
A careful computation made a few years ago with 
the aid of a friend who was an experienced banker, 
showed that the amount of deposits that were actu- 
ally loaned in this State, was over seventy per cent, 
varying all the way from sixty-three or four up to 
something above eighty per cent, of the deposits. 



MONEY AND BANKING. 269 

The data before us did not enable us to determine 
the average amount of time for which it was loaned. 
But probably it would have been quite short, not, I 
presume, exceeding twenty days. 

But if we look at this as affecting the bank's sol- 
vency or ability to meet all its liabilities, we see at 
once that the notes discounted, on which these loans 
were made, must have exceeded in amount the 
money but by the discount or interest on them, 
and they must have left over and above what they 
amounted to, a portion of the deposits not loaned 
out at all. 

But anyhow, a bank is not strengthened — It is 
rather weakened — by this loan of a portion of its 
deposits ; the total ratio of resources to liabilities, is 
reduced by it, and may, of course, be so far reduced 
as to render the bank unsafe. It is, however, a 
means of increased profit and income to the banker. 
Without it, as we have seen, he is able to realize in- 
terest on a good deal more than the amount of 
specie in his vaults ; with it, the amount on which he 
receives interest in excess of his specie is very much 
increased. 

And we must remember that the specie in his 
vaults, is about the only part of the banker's capital 
that is really at work, and earning the income of the 
banker. All else rests on this, or draws interest and 
does its work only because this is there as a basis. 



270 POLITICAL ECONOMY, 

The specie is to the banker, what ''the capital," 
technically and properly so called, of other trades- 
men, is to them ; and all else, circulation, notes dis- 
counted, stocks owned, bonds and mortgages on file, 
are to the banker, what the wares and articles of 
merchandise are to the trader. They may far ex- 
ceed in amount, the capital engaged in the business, 
and necessary for its safe and successful prosecu- 
tion. 

22 J. The nature of ^^the loans and discounts.'' 

It may be necessary to state farther, as a means 
to a fuller comprehension of the whole subject, that 
"the loans and discounts," as they appear on the 
banker's books, do not represent, or bear any con- 
stant relation, to either the specie in the vaults, or 
the bank-bills issued by the bank, making what is 
ordinarily discussed under the head of circulation. 

A glance at any bank statement, or report of the 
condition of its affairs, will disclose the fact, that as 
a general thing, the loans and discounts exceed the 
amount of both specie and circulation ; thus, to use 
a statement now before me, which is a fair average 
statement: In the State of New York, Dec. loth, 
185 1, the total specie was $8,306,829; the total of 
circulation $26,228,553; making together $34,535, - 
382. But the loans and discounts on that day, 



MONE V AND BANKING. 271 

amounted to $104,039,788, or about three times as 
much as the specie and bills together ; the specie, of 
course, was not allowed to pass out of their vaults 
into circulation, so that the loans and discounts were 
about four times the amount of the bills, or money 
they had to lend. 

224.. Loans deposited. 

The explanation is easy. Whenever a customer 
to a bank makes a loan of large amount, he does 
not want the loan in 7noney that he can carry away 
with him. He prefers to have it in the bank, in the 
shape of credit to his name, so that he can draw 
upon it to make the payments he may have occasion 
for in the ordinary course of his business. Hence, 
when he borrows money, instead of taking the 
money, he prefers to leave it **on deposit," subject 
to his order. But there may be no money, as we 
have seen, that could be counted out and passed 
into his hands over the counter; none, for the 
reason that the loans and discounts exceed the 
money, by about four to one. So, when the draft 
comes in, the party to whom it has been given by 
the depositor in payment, may not want the 
money ; many of them will not want it ; they will 
merely want to have the amount credited to them 
in their bank account, to be drawn against in like 
manner by themselves, when occasion may require. 



272 POLITICAL ECONOMY. 

In the same way, the items of deposits greatly 
exceed the amount, whether in currency or in specie, 
that has actually been deposited ; that is, passed 
over the counter of the banks into their custody. 
It consists largely of the "loans and discounts" that 
have not been paid, but only passed to the credit of 
the borrower. 

22^. Necessity for a specie basis. 

This brings us to the very important question of 
specie payments, or what is called in other words, 
"the solvency of a bank." 

The solvency of a bank, and the possibility of 
specie payments, must depend, of course, upon a 
certain ratio between the specie in the vaults, and 
the bills in circulation. 

The paper thus issued, it will be remembered, 
has in itself no intrinsic value, or but little as old 
paper — perhaps three cents a pound. Its value 
consists in its being evidence of ownership ; or, as 
is sometimes said, the intrinsic value consists not in 
the paper, but in the responsibility of the parties 
that issue it as a "promise to pay;" but more cor- 
rectly in its being evidence of the obligation to pay 
the amount of the face of the bill. 

Suppose, for example, I buy a piece of land. 
Since I cannot remove it, I take a deed of it; that 



MONEY AND BANKING. 273 

deed is evidence of ownership, and as such has an 
intrinsic value far exceeding that of mere blank 
paper. 

Suppose, again, I buy a horse, and do not wish 
to take it away at the time; I take a bill of sale, 
and that is proof of ownership, and entitles me to 
take the horse at a subsequent time, as by contract 
agreed upon. 

Suppose, again, I lend a man a sum of money, or 
work for him a day, I acquire thereby a right of 
ownership in something that is in his possession. 
He gives me his note, and that entitles and enables 
me to go and demand something equal in value to 
what is specified in the note or due-bill, and usually 
estimated in money ; and in case he refuses or 
neglects to pay me, it authorizes me to take some- 
thing of his as payment. 

But suppose, again, instead of giving me his note 
he gives me bank-notes, or bank-bills, as we usually 
call them. I release him, and have no further 
claim on him, but I become owner by that fact, and 
to the extent of the face of the bills, of the stock 
and other property of the bank, although of course 
I am not regarded in law, nor am I in fact, a stock- 
holder, technically so called. 

226. The effect of redemption. 

And if a bank should be obliged on any one day 
18 



274 POLITICAL ECONOMY. 

to redeem or take in all its bills, the bank would 
have the bills indeed, but the former bill holders 
would have the capital, and all that the former 
stockholders would have would be the notes, etc.^ 
which they had discounted. 

These^ in like manner,- would be in their hands 
evidence in the ownership in the property of their 
customers for whom they had granted the discounts, 
and th-eir value could be collected out of these bor- 
rowers. 

And thusy if at any one moment, all paper 
money, together with all other forms of paper evi- 
dence of ownership or indebtedness^ should be 
destroyed^ or pass on according to its originall 
destination until it shall have reached maturity and 
accomplished its object, there would be indeed a 
change in the fact of ownership, but no change in 
the real aggregate wealth of a community. Only 
a vast amount of property would very suddenly 
"change hands," as the expression is, and rest in 
the hands of the true owners, so that the visible and 
apparent, and the real or true,, owners would be the 
same parties. 

But this case can never come until the final day 
of doom, and then we shall all have something else 
to think of besides getting our share of the pelf and 
peltry of this world. 



. MONEY AND BANKING. 275 

32^. Ratio of specie to loans and discounts. 

At all times some specie will be wanted for 
change, and some will be wanted for foreign ex- 
change, etc. Now so long as people can get 
enough for such uses, they do not want more : they 
had rather have paper, provided the banks are 
■^'good." 

Bankers soon find by experience (and we may, by 
studying their reports) how much specie they need 
to meet their wants. More is required in the city 
than in the country. But taking the two together, 
we find the ratios pretty constant at about one 
dollar in specie to three, or a little less, of paper; 
and about fifteen per cent, or one in specie to six 
or seven of capital ; or ten per cent, in the country, 
and twenty in the city banks. 

The ratio of specie to loans and discounts may be 
changed by a change in either of the items — specie 
in the vault, or loans and discounts credited on the 
books. 

(i) When there is a large balance of debt against 
us in foreign countries, specie must be drawn from 
the banks and be exported in order to meet that 
indebtedness ; hence the necessity for so much more 
specie in proportion to circulation in commercial 
cities than in inland towns. 

(2) When there are prospects of large crops and 



276 POLITICAL ECONOMY. 

an active business, banks are tempted to lend freely^ 
and thus, if not actually to increase the amount of 
bills in circulation, to increase their liabilities in the 
form of loans and discounts credited on their books^ 
which may be drawn against, and which, therefore^ 
they must provide for, and which^ as well as their 
bills, they must pay on demand in specie. 

So that usually the ratio of specie to loans and 
discounts is much more important as determining 
the possibility of specie payment, than that of specie 
to circulation. This ratio is found to be about seven 
or eight per cenL or one dollar in specie for twelve 
of indebtedness in the banks in our country, gener- 
ally : or rather, it was so in the days of specie pay- 
ments before the war. But it is greater in the 
seaport towns than in the interior ; that is, the loans 
and discounts cannot so far exceed the specie in the 
seaport towns as in the country. 

The bank report for the United States, Dec. 3 1 st 
1874, gives the following facts. 

Total number of banks 2027. 

Capital, - - . . $495,802,481 

Deposits (total), - - - 693,927,095 

Loans and Discounts, - - 955j86i,397 

Specie, _ - _ 22,436,761 

Legal Tenders, - 82,751,791 

Legal Tenders and Specie, - 105,188,552 

Bank notes in circulation - - 322,043,937 



MONEY AND BANKING. 27,7 

The Loans and Discounts are very nearly double 
their Capital, and nearly as large as their Capital and 
Deposits together; or to be exact, the Loans and 
Discounts are equal to their Capital and a little over 
sixty-six per cent, or about two-thirds of their De- 
posits. 

The total amount of Specie and Legal Tenders 
combined, was to their bills outstanding, as i to 
3.26, or their circulation was more than three times 
the Legal Tenders and Specie which are to re- 
deem it. 

The Deposits were in excess of their Capital by 
about the rate oi three dollars of Deposits to two 
of Capital 

And the ratio of Specie and Legal Tenders to- 
gether, to the Capital, was about one to five, or the 
Specie and Legal Tenders were only about twenty- 
one per cent, of the Capital. 

Now, when for any cause the proper ratio be- 
tween either capital, or specie and discount, becomes 
too small, the banks, having discounted too much, 
are cramped, and if it comes to be very much less, 
the banks are obliged to suspend specie payment, 
simply for the reason that they cannot supply the 
amount of specie needed for the business that will 
be done with so large an amount of indebtedness 
standing against them on their books. 



278 POLITICAL ECONOMY. 

228. Lifnit to a bank's ''^ circulation.^^ 

And this is really the lirnit to circulation also;, 
namely : the ratio between the amount of coin that 
is needed for redemption of their bills and the 
amount of paper that is needed for the purposes of 
exchanges; this ratio will vary with many circum- 
stances. 

(i) In times of in^curity and uncertainty, people 
are anxious to have as much of their means in 
specie as possible. Hence with the first alarm of 
war or other calamity, a run upon the banks, and a 
large amount of specie is drawn out to be hoarded. 

(2) In times of large importations more specie is 
needed : since our foreign goods can be paid for 
- — at least the excess of imports over exports — - 
only in gold and silver ; hence we have an additional 
item in favor of domestic exchanges as contrasted 
with foreign. 

(3) The prohibition of small bills. In many 
States the issue and circulation of bills of a less 
denomination than $5,00 has sometimes been pro- 
hibited. This will of course necessitate the keeping 
of a larger amount of specie in the banks to meet 
the demands of business. * 

22g. How banks cause fluctuations in prices. 

The agency of banks in causing fluctuations in 



MONEY AND BANKING. 279 

price i-s easily understood. When everything is 
favorable they discount^ largely, and that makes 
eioney plenty and prices high. But the moment 
they exceed what is actually needed for the business 
of the country, they become straightened and are 
obliged to withhold discounts, and "call in their cir- 
culation," as the expression is ; this they must do in 
order to be in a condition to meet their liabilities. 

This *' calling in" of their circulation makes 
money scarce : prices fall ; dealers lose ; many fail. 

It is sometimes thought and said that banks 
.might relieve a ''tight market" by further issues, or 
at least by forbearing to ''call in." But we forget 
that they have already discounted until they are in 
danger. If, therefore, they should continue to dis- 
count, or keep out their bills, they would soon be 
unable to redeem them — they would fail, and then 
all their paper would become depreciated and 
worthless, and the country would be worse off than 
a merely "tight market" could make it 

2 JO. Return to specie payment after suspension. 

I have spoken of banking as being done by indi- 
viduals and corporations ; the effect will be the same 
if it be done by nations. Their paper will be at 
par when they can redeem it, as fast as it becomes 
due at par, either in gold and silver, or in bills on 



2go POLITICAL ECONOMY. 

specie-paying bonds. But if the ratio of specie to 
debts be too small, they can return to specie pay- 
ments in either of two ways, and in one or the 
other of them only. 

(i) By reducing the paper in circulation. This 
they can do by destroying it as it is paid in, and 
this they can do^ of course, only when their income 
is in excess of their expenses. Otherwise the paper 
or something of the same kind, must go out to pay 
the liabilities. 

(2) Or secondly, by holding on to the quantity of 
paper until the amount of specie increases by the 
growth of business to the normal ratio. This is a 
slow process ; but in a growing country it is a sure 
one. 

2JI. Ratio of specie to circulation in this country. 

When our last war broke out, the amount of pa- 
per bills was about $225,000,000; it is now $725,- 
000,000, or more than three times as much. The 
specie then was sixty millions ; the specie now 
owned by the government, is not more, probably, 
than twice that amount, or about one hundred and 
twenty millions. The specie is about twice as much 
as then, the circulation three times as much. And 
whether the circulation be more than business wants 
require, or not, it is more by about thirty per cent. 



MONE Y AND BANKING. 281 

than the amount of gold on hand can keep up to 
the par value. And gold is, as we say, thirty per 
cent, premium, or $1.30. But more truly, paper 
is at about 75 per cent, its nominal value. The fol- 
lowing table shows the amount of bills in circulation 
with the ratio of the one to the other, for sixteen 
years before the war : 



1837 


CIRCULATION 
$149,185,890 


SPECIE 
. $37,915,340 


RATIO 
3.97 


I84I 


107,290,214 


34,813,958 


3.08 


1842 


83,734,011 


28,440,423 


2.94 


1843 


58,563,608 


33,515,806 


1-74 


1844 


75,167,646 


49,898,269 


1.30 


1845 


89,608,711 


44,241,242 


2.02 


1846 


105,552,427 


42,012,095 


2.75 


1847 


105,519,766 


35,132,516 


3.00 


1848 


128,506,091 


.46,369,765 


2.79 


1849 


114,743,415 


43,619,368 


2.56 


1850 


131,366,526 


45,379,345 


2.76 


I85I 


155,165,251 


48,671,048 


3-19 


1854 


204,689,207 


59,410,253 


3.61 


1855 


186,952,223 


53,944,546 


3-46 


1856 


195,747,950 


59,314,063 


3-30 


1857 


214,778,822 


58,349,838 


3-7^ 



Average $2.88 

2^2, The effects of over -is sue. 
The lowest ratio was in 1844; it was then 1.30; 



282 POLITICAL ECONOMY. 

in 1857 Z-T^y a^^d in 1837 it was 3.97; and in both 
these years we had a suspension of specie payments 
by our banks, showing clearly that 3.72 is above 
the ratio of circulation to specie which the banks in 
our country can carry. 

The average for the sixteen years is 2.88, which 
may, perhaps, be assumed to be the safe one, or that 
at which the banks in our country are safe, and at 
which specie payments can be maintained. And 
about the same ratio is found to be safe and neces- 
sary in England, in France, and in other nations of 
Europe. 

It will be considered that this is the average for 
the whole country. Each locality has one of its 
own, and for itself. In New York city the banks 
seldom, if ever, have so much circulation as specie, 
their loans and discounts consisting mostly of 
credits on their books. But in the country it is not 
uncommon for the ratio of circulation to specie to 
exceed ten to one. The ratio for the State of New 
York as a whole is about the same as that for the 
nation as given above, though a little higher. 

^jj. How money differs from other commodities. 

Money, whether paper or specie, is in most 
respects like other commodities. It obeys the laws 
of supply and demand, increase and diminution, 



MONEY AND BANKING. 283 

relative value, current price, etc., which have been 
already stated. But there are several respects, at 
least, in which these laws are completely reversed in 
regard to money, using that word to denote either 
coin or paper, or both together, as the case may 
happen to be. 

(i) It is a general rule that when everybody, or 
nearly everybody, complains of a scarcity of any- 
thing and wants more of it, more is actually needed, 
the supply is inadequate to the demand, and not 
enough of it is produced. 

But in regard to money it is quite otherwise. 
Money depends for its intrinsic value, as well as for 
its price, chiefly on its scarceness. Doubtless it 
would be a convenient and very desirable thing for 
me if, by some means or other, every dollar I have 
in my pocket could be doubled and made into two. 
But suppose the same thing should happen to all 
other persons in the community, so that the gross 
amount of money should be doubled, nobody would 
be the gainer thereby. Dollars would be worth 
only half as much, in consequence of the increase in 
their number ; or, what would be practically the 
same thing, everything else would rise in price, in 
proportion to the increase in the amount of money 
in actual circulation. Hence the apparent paradox, 
that the fact that everybody wants more money is 
no proof that there is any real want for it in the 
community. 



284 POLITICAL ECONOMY. 

(2) Another very important point, in regard to 
which money follows directly the opposite of the 
common rule, is this, namely : while in all other 
cases the better of any two articles offered at the 
same price in any market will drive the poorec out 
of the market, provided always that the better can 
be supplied in sufficient quantity to meet the entire 
demand ; yet in the case of money the poorer, if it 
can only keep itself in the market, will drive all 
others out. 

. This is not because the poorer is the best ; but 
because we buy all other things to use, while we buy 
money to keep, as much and as long as we can, and 
to sell only when we are under the necessity of 
parting with it. Hence a man having two kinds 
of money in his pocket will keep the best to himself 
and pay out the poorest, if it will be received at all. 

(3) Again, money is about the only commodity 
of which people want more than they really need. 
No man cares to get more food than he expects 
to consume. No one will buy clothes that he has 
no expectation of ever wearing. No manufac- 
turer or trader will buy stock that he does not 
expect to work up or to sell. But it is not so with 
money. Everyone, except, perhaps, the worst and 
most thoughtless spendthrift, has a disposition to 
*'lay up" something beforehand. One likes to have 
his pockets ''well lined," even when he does not 



MONEY AND BANKING. 285 

expect or intend to spend his money. There is a 
foolish pride, as well as a commendable foresight, 
which predisposes us to seek to acquire and possess 
money, or that which can readily be turned into 
money, far beyond any expenditures or purchases, 
that we intend to make. 

These are, perhaps, the principal points in which 
money differs from other commodities that the 
statesman and the student of the philosophy of 
history will have occasion to take note of, in order 
to secure the best results in their several departments 
of labor and study. And there will be occasions 
when they must be taken into account as a means 
of saving us from gross errors. 

2j/[.. What determines the amount of paper. 

It is a fact of fundamental importance, that when 
paper money is at par, and so long as it is kept at 
par, the amount in circulation and use will be de- 
termined by the business wants of the country, and 
not at all, as is often supposed, by the amount of 
gold and silver that exists either in the form of coin 
or that may be converted into coin. 

Gold and silver, as we have seen, have intrinsic 
value for other purposes than coin, and this is a con- 
trolling fact. It creates a demand for them for other 
purposes, and this is one element in controlling their 
price. 



286 POLITICAL ECONOMY. 

But the demand for coinage is undoubtedly the 
chief and controlHng one. As much of them will 
be had for that purpose as is needed — and no more 
will be coined than is needed, whatever the amount 
in existence may be. 

2j^. Banking compared with other ^^ business-.*^ 

Banking is for the most part like other business. 
Suppose a man about to start in any business ; one 
of the first questions he asks himself is, how much 
business can be done in the community, and the 
next is, how much capital is needed to do it with. 

So with a man about to start a bank. How 
much loans and discounts the business wants of the 
community will require ? How much circulation, 
or paper currency ? How much specie will be 
needed to do this business ? His specie is really 
what the capital of the merchant or manufacturer 
is to him. If his business requires more than he at 
first expected, he will increase the amount ; if less 
will answer, he will reduce it, taking it from that 
business to invest it somewhere else. 

But how much business can a banker do ? How 
much circulation or bills does he need ? How much 
does the community want ? As I have already said, 
money is in most respects like any other commodity, 
and obeys the same laws. And we accept them as 
far as they will apply with reference to money. 



MONEY AND BANKING. 287 

In regard to everything else, the fact of a univer- 
sal demand, the fact that everybody wants more 
than he has or can get, is proof incontrovertible 
that more is needed. But as already said, this is 
not so in regard to money. And in fact, such and 
so frequent are the changes in the ways of doing 
business, that it is exceedingly difficult to argue 
from one country or state of business affairs to 
another. Thus, it is said in England, where there 
has been nothing to prevent the increase of circula- 
tion as the business of the country has required, 
there has been no increase in the circulation for the 
last thirty years, notwithstanding the immense in- 
crease in the amount of sales and exchanges, 
ordinarily requiring the use of money : the increase 
has been rather in the amount of exchanges effected 
on the books of the bankers. 

2j6. How detennine the amount of paper needed. 

Suppose now, all the bankers of a nation can be 
considered as one man, and that one man is to do all 
the banking ; and suppose, for the sake of conven- 
ience, he is limited to six per cent, interest on his 
loans and discounts, whether paid in bills over his 
counter, or entered on his books as credits to the 
borrower. He will, of course, lend all he can, and 
his customers will borrow all they can. And what 



288 POLITICAL ECONOMY. 

they can borrow, and what he can lend, will be the 
amount that is needed for that community. But how 
much will it be ? He cannot, or will not, lend for 
less than six per cent When business is prosper- 
ous, so that safe men can make more on the capital 
they can use, than six per cent, they will borrow of 
the bank, and the bank will be glad to lend them 
money. But the moment business becomes dull, 
from any cause, or the moment it is over done so that 
it will not pay six per cent, on capital, safe men will 
not borrow, and imsafe men cannot ; the bank cannot 
lend safe men and it will not lend to unsafe men. 
Hence, it is no matter how much money the bank 
may have, whether in paper or in specie. It can- 
not force it into circulation. 

The present condition of our currency is a good 
illustration of this law. The amount actually issued 
and in the technical sense in ''circulation," that is, in 
circulation de jure or potentially, is over seven hun- 
dred millions of dollars, exclusive of fractional cur- 
rency. But the bankers' report for January ist of 
the year 1875, showed that only about three hundred 
and thirty millions of dollars were actually in circu- 
lation, that is, out of the banks. This is consider- 
ably more than one half the entire amount 

Hence, the law of supply and demand will deter- 
mine the amount of currency any community needs 
— -it cannot find out how much the people of that 



MONE Y AND BANKING. 289 

community want, but it will find out and proclaim 
to the world just how much is needed, provided the 
banks are held to specie payment on demand. 

If however the paper is unredeemable, there will, 
of course, be no limit to the amount issued, except 
the will of the Legislature that issues or authorizes 
it. With every increase of amount, however, there 
will be an inevitable decrease in value, or a rise in 
the prices of all other commodities. 

^j/. How deterrnine the amount of specie. 

We can now pass to the consideration of the 
amount of specie that will be needed. We have 
seen that this is like the merchant's or manufactur- 
er's capital. If the banker starts with more than he 
needs to enable him to supply the community with 
all the circulation it needs, as ascertained by the 
process just described, he will sell part of it The 
coin he sells will not go into circulation, instead of 
paper ; it cannot be forced into circulation in that 
way, except by some interference of the Legisla- 
ture, prohibiting small bills, or requiring specie in- 
stead of them in some of the payments that must 
be made. It cannot go into the vaults of other 
banks, for, by the supposition, there is only one 
banker. 

Or, if we choose to vary the statement, we may 
19 



2go POLITICAL ECOMOMY. 

say that after the banks, how many soever the}?r 
may be, find that they have more than they need to 
keep the amount of paper thus found to be necessa- 
ry afloat, they will sell it, and when they sell it, it 
will go into the melter's pot, to be converted into 
jewelry and other articles of merchandise. To keep 
it is only to lose the use of it It would be like the 
merchant's keeping in use more capital than his 
business needs. 

If, on the other hand, the banks find that they 
have not enough to ''float" the amount of circula- 
tion needed, more will be coined to supply this de- 
mand. But no more will be coined than is needed ; 
it would be simply a waste of capital, using more 
than is needed for the maximum rate of profit on 
the business in which it is employed. 

Hold bankers to the necessity of specie payments 
on demandy and allow them to issue paper at will^ 
and they will soon determine how much currency is 
needed, and how much coin is required to serve as 
a basis for that currency. But the will and choice 
of man cannot much aflect it. Legislation cannot 
set bounds to it. And no ptiblicisty doctrinaire, or 
mere speculator^ can determine it on theoretical 
grounds. 

2 J 8. Governments cannot control the amount. 

Even government itself cannot for(ie upon a peo- 



MONE Y AND BANKING. 291 

pie much more of a circulating medium than it 
aieeds. When the late war broke out we had about 
two hundred and fifteen millions of dollars in paper 
in circulation. With the breaking out of the war 
came an increase of the paper, and a suspension of 
specie payments; the war closed with about seven 
hundred millions of paper, or about three times as 
much as we had at the beginning of the war. But 
the war itself was a great ''business,'' and made oc- 
casion for an immense increase in the circulating 
medium. At its close so much money was not 
needed, and rather than lie idle it gave a stimulus to 
other enterprises and kinds of business, until the 
business was overdone, or at least much was under- 
taken which the wants and conditions of the coun- 
try did not require and would not justify. Hence 
failures and distrust And now the paper is hoard- 
ed up, and in a sense it is scarce. Business men 
dare not expand, and capitalists will not lend. They 
had rather keep their money without interest than 
risk the loss of the principal by insecure invest- 
ments. 

The present condition of our country is both an 
illustration and a proof of this. The amount of 
paper actually in circulation — that is, out of the 
banks doing service as a circulating medium — on the 
31st of December, 1874, was $332,043,937. Gold 
was at that time, as usual, about $1.15. Reducing 



292 POLITICAL ECONOMY. 

the paper to par, or eighty-seven per cent, and 
making the reduction,, this amount was about equal 
to $290,500,000 of paper at par value, or abwDut $75,- 
000,000 more than just before the wan And this, 
notwithstanding the amount actually printed and ex- 
ecutedy and technically in circulation was> including 
fractional currency, over $750,000,000. 

And, if we bear in mind the fact that nearly all 
prices are higher than before the war — the average 
beingy evidently^ more than the premium on gold 
— I think we shall see that the amount of paper 
money that the country really needs, nay, the 
amount that even government itself can keep out 
at the utmost, is only about the same as there was 
before the war of i860, 

^jp. How gold and silver affect the amount. 

Gold and silver affect the amount of currency — 
so long as it is kept at par — only as other commod- 
ities having exchangeable value, affect it. The 
amount of property in any community, and the 
amount of exchanges are two important elements 
in determining the amount of currency, and gold 
and silver as property y exert their appropriate influ- 
ence. 



MONEY AND BANKING. 293 

2^0. Why no inore is coined. 

But the amount of gold and silver that will be 
coined, will have no constant relation to the amount 
that there is in the market — the demand for them for 
other purposes, and their intrinsic Value for those 
purposes is so great, that no increase of their quan- 
tity which the nature of the case allows us to expect, 
can greatly diminish their price, whatever may be- 
come their exchangeable value. 

Hence no more of them will ever be coined than 
are needed to enable banks *^to float," as the expres- 
sion is, the amount of paper that the business 
wants of the community demand, whatever may be 
the increase in the quantity that the various proc- 
esses of mining may bring into the markets of the 
world. 

If, however, there should be a sudden demand for 
currency, or the breaking out of a war, there will 
of a necessity be a demand for more currency than 
this amount of coin can carry at par : this will occa- 
sion the issue of more paper, and the suspension, for 
a time at least, of specie payments. Or, if for any 
•other reasons, banks are relieved from the necessity 
of redeeming their paper at par on demand, they 
will of course increase their loans and discounts, and 
most likely their circulation also. And if compelled, 
and whenever they are compelled to return to specie 



294 POLITICAL ECONOMY. 

payments, they will redeem their circulation, but 
they cannot materially increase the amount of specie 
in the world by diverting- more of the precious 
metals from other uses",, and converting them into 
coin. 

When paper is below par, except in the emer- 
gencies I have spoken of, it is not because there is- 
not so much specie as is needed, but it is rather 
because there is more paper than there ought to be.. 

2/]:i. Effect of inconvertible paper. 

But what difference does it make ? Why is it not 
as well that paper should be below par, as to have 
gold at par and paper redeemable > 

Gold and silver are, and ever will be, the acknowl- 
edged standard of value the world over. It may 
make no difference in the mere local exchange of 
known products, for prices will adapt themselves to 
circumstances. But the moment we enter- into the 
commerce of the world we feel the difference. 
When paper is cheap and at a discount, as with us, 
everything else bears an inflated nominal value ; 
prices are fluctuating and uncertain ; successful spec- 
ulators make large and rapid fortunes, and every- 
body else suffers in consequence. 



MONEY AND BANKING. 295 

2/J.2. A practical test proposed. 

I think that the following practical test would 
•settle this matter at once. 

Let any one bank offer its notes for circulation^ 
payable on demand in specie, and I think it would 
soon be found that they are so much better than 
any others that can be devised, or stand on any 
other basis, that in case the bank could supply the 
demand for them, no others would be received. In 
this case the better article would certainly drive the 
poorer out of use, because it would be regarded as 
too poor to be in circulation at all, and thus leave 
no chance for the competition spoken of in a pre- 
ceding section, in which the poorer money always 
drives the better out of circulation. 

Or at any rate, the paper of a bank that would 
redeem in specie on demand, would be as muck 
above the par value of any other offered for cur- 
rency, as gold itself, and possibly even more above 
par than gold. It would be better for many uses. 

It may be said this is a mere notion, and a mere 
whim — a "survival" of ages less enlightened than 
our own — and that it is the duty of statesmen to do 
away with such an expensive delusion. But even 
the *' whims" of business men, and the common 
sense of the community are sometimes better than 
the crotchets of mere theorists. 



296 POLITICAL ECONOMY, 

"If Berkly says there is no matter, 
It is no matter what Berkly says." 

There are some opinions that are so absurd, that,, 
as it seems to me, the mere utterance of them.' 
releases us from all obligation to attend any farther 
on what their authors may have to say. And yet 
this attitude towards any opinion should be taken 
only with great caution, for, as a general rule,, 
we are more likely to ridicule as senseless that 
which is too deep for our comprehension, than that 
which has no sense for us to comprehend. And yet 
I cannot but regard this idea which we sometimes- 
meet with, of a paper currency based on nothing, 
convertible into nothing, as one of the kind that 
may be so treated. 

The doctrine of a money based on a nation's' 
indebtedness is quite a different affair. It can never 
give a satisfactory and stable currency. It will 
never be quite at par with gold. But there may be 
certain emergencies^ certain crises in a nation's 
affairs, where a resort to it is the least of several 
evils from which the choice must be made. 

.?^j. How money gets into circulation. 

It not unfrequently appears to me when reading 
the speculations concerning money and bankings 



MONEY AND BANKING. 297 

that the writers have either forgotten or never defi- 
nitely considered how money gets into circulation. 

Suppose a community in which there is no mon- 
ey. Some man has a portion of the precious metals 
which he is willing to coin. He coins them. But 
how, and on what conditions, will they get from him 
into circulation ? Surely he will not give them 
away. He will not distribute them for mere amuse- 
ment, or benevolently supply the wants of all the 
needy who call upon him. 

I can conceive of only three ways, in one or the 
other of which he can be expected to part with his 
coin : 

(i) To pay for the labor of some one or more 
persons who will work for him for wages, (2) to pay 
for articles which he wants to use, or to keep and sell, 
or, (3) he may lend it on promises to repay it, with 
good security. 

Or if it be a government that has the gold and 
silver, it may coin them into money and pay it out 
for (i) salaries to those in its employ (2) for the 
supplies of various kinds which it may need, and (3) 
for any indebtedness which it may have contracted. 
But it can no more be expected to part with its 
money without receiving some value in return than 
the private citizen would. For, as we have seen, 
the mere coining of the metals does not at all im- 
pair their intrinsic value for the other uses for which 



298 POLITICAL ECONOMY. 

they are desired, and to which they may be con- 
verted. 

And if now, we look at the issue of paper cur- 
rency, we shall find very much the same law. If it 
is inconvertible — contains no promise to pay in any 
thing having value — no one will receive it. Not a 
man will work one hour for a mere piece of pictured 
paper, however beautifully executed. No man will 
part with what has cost him any labor, for such stuff. 
Nor will any one accept it in payment of a debt, 
except when government has declared it to be legal 
tender, and then he will consider himself as having 
been robbed of the amount of his claim. 

2^/}.. Paper not convertible on demand. 

But if we make the paper convertible — the evi- 
dence of a promise or obligation to pay a certain 
amount indicated in words and figures on the face 
of it, as is the case with ordinary bank bills, then 
we have three cases : 

(i) It may be payable in coin on demand, and 
then it will be at par, and as good as the gold itself 

(2) It may be made convertible into government 
bonds on demand, and then its value will be deter- 
mined by the nature of the bonds, their rate of 
interest, their convertibility into coin, and the 
responsibility of the government, etc., — always 
below par. 



MONEY AND BANKING. 299 

(3) Or finally, it may be payable in coin, but, 
like our present greenbacks, not on demand. 

In this case it will inevitably be below par ; or 
gold will be at a premium, and all the commodities 
we may have occasion to buy will be held at prices 
far above what they would command if the paper 
were payable on demand, as the coin itself is above 
the par value of the paper. 

^^5. Premmm on gold determined by the ratio of 
gold to paper. 

And this difference between the value of gold 
and that of the paper will vary in the first instance, 
and always with the ratio of the paper in circulation 
to the gold in the possession of the government or 
virtually at its command. 

And we have seen that if it exceeds the gold by 
more than about three to one, the gold will be at a 
premium, or the paper below par ; this is inevitable. 
And then there will be other elements in the differ- 
ence between the price of the paper and that of 
gold, such as I have just spoken of (2). 

But in any case it seems to me clear that incon- 
vertible paper could not be put into circulation at 
all. The creditor might be compelled to take it for 
what he has already parted with, and go through 
the formality of giving a receipt for his claim. But 



300 POLITICAL ECONOMY. 

the ** money" would stop there, unless he should 
happen to be owing somebody whom he could 
compel to take it, and so on. The only other thing 
would be the use of it in paying taxes, if the gov- 
ernment would accept it in payment of them. And 
there, probably, it would end, or, at most, dwindle 
in value, to be determined by the demand for it as 
a means of paying taxes. And it would soon 
become worthless at that, for no one would consent 
to serve the government for pay in such money, 
and then even the government itself could not get 
rid of it. 

Convertible paper, however, that is, paper that by 
virtue of any promise to pay which it should contain 
on the face of it, or of which it should in any way 
be the evidence, can not sink so low, so long as 
the government or the bank issuing it is solvent. 

But it seems too plain for argument that a paper 
currency not based on and convertible into something 
that has a value besides and greater than its own, is 
an absurdity not to be discussed, even among sensi- 
ble men, and it seems to be about equally as plain 
that a currency based upon and convertible on 
demand into coin, is not only the best that any 
nation can have, but that such a currency is the 
only one that can give any stable basis for the 
business transactions of civilized man. For reasons 
already given, it is better for the business wants 
of men than the specie itself 



CHAPTER IX. 

OF OVER-POPULATION — HOPES AND PROSPECTS. 

Wealth the product of quantity into value — Man's well being 
depends on distributive wealth — Effects of increasing and of 
decreasing wealth — Eifects seen in large cities — Two theories 
of population — Reasons for Malthus's theory — Reasons for 
Carey's theory — How far satisfactory — The rate of increase 
of production — The rate of increase of population — Limits to 
the rate of increase of population — Statistics bearing on this 
point — Difference between civilized and savage society in this 
respect — Inference from the foregoing — Reference to the present 
condition of civilized nations — The rate of interest indicates the 
rate of mcrease of wealth — This compared with the rate of 
increase of population — Inference from these facts — A turning 
point in the law — Signs of approach to it — The effect of our 
reaching it — Changes in social and private habits — Fears of a 
noblesse of wealth — Reasons why there can be none — Unity of 
executive necessary — Effects of increasing intelligence — Fears 
■ of a violent assumption of wealth by the few — The poverty of 
the many no fault of nature — Economic effects of universal 
suffrage — Increasing regard for the principles of right— Im- 
provement in the administration of justice — Approach towards 
social equality — No over-population possible. 

24.6. Wealth the product of quantity into value. 

We have treated wealth as a product of quantity 
into value, and quantity as determined by the num- 



302 POLITICAL ECONOMY, 

ber of persons engaged in the two forms of agricult- 
ure, farming and mining, fishing and hunting. 

But quantity also bears some relation to the 
amount of land under cultivation as well as to the 
number of people who may be engaged in cultivat- 
ing it, and both these elements, the amount of land 
under cultivation, and the number of persons that 
are engaged in cultivating it, are variable quantities. 
And although their variation is to some extent mu- 
tually dependent, yet they vary by different laws. 

24."/. Man's well being depends on distributive 

wealth. 

Moreover it is, as we have seen, not the aggre- 
gate wealth that determines man's well being, but 
rather the distributive wealth, in the particular com- 
munity where he may happen to live ; that is, the 
aggregate wealth divided by the number of the 
population. And this distributive wealth may be 
either an increasing or a decreasing quantity accord- 
ing as the ratio of variation between increase of 
population and the productiveness of the soil may 
happen to vary. 

248, Effects of increasing and of decreasing wealth. 

When the aggregate wealth is increasing more 



OVER-POPULATION. 303 

rapidly than the population, we have an Increasing 
distributive wealth and an improving condition of 
human life. And when, on the contrary, population 
is increasing more rapidly than wealth, we have a 
decreasing distributive wealth, and the people are 
consequently retiring towards poverty; and with 
general poverty there must of course come back 
upon us the state of barbarism. 

This decreasing condition of distributive wealth is 
indeed one of the most powerful means of demoral- 
ization that is known to the student of the philosophy 
of history. It not only brings, in the end, and as a 
result, want, hunger, cold, privation, with all the 
train of diseases, suffering and death which insuffi- 
cient food and clothing produce ; but it produces, 
long before such an extremity is reached, anxiety in 
view of it, with a transformation of self-interest, 
which is commendable, into selfishness, which 
hardens the heart against all considerations of 
humanity and generosity ; nay, even against the 
natural affections that bind man to his own "flesh 
and blood," his wife and children ; with an immense 
relaxation of public and private morals, men rushing 
into crime and women into shame, until we have 
all the evils of which humanity is capable, concen- 
trated and accumulated in one centre. 

On the other hand, an increasing distributive 
wealth is one of the most favorable conditions for 



304 POLITICAL ECONOMY. 

promotion of intelligence, morals and refinement 
that we know of. In fact, so important and control- 
ling are these two influences that all other means to 
promote or retard morality are of but little avail 
without them. 

^^p. Effects seen in large cities. 

Now what we thus contemplate in general and in 
the abstract is apt to occur in any large city, whither 
people are attracted by one influence or another 
in excess of the demand for the performance of any 
labor that is there to be found. Hence, while there 
may be a class who are growing richer, and while 
in fact the general distributive wealth of the city or 
the nation is increasing, we have a large portion for 
whom it is decreasing; and the effect is the same, 
if not worse, upon them than if the decrease were 
general, and extended to all the inhabitants of the 
city or the nation alike. These people usually col- 
lect or are forced together in some special locality, 
and make a Five Points for any city, a sort of pan- 
demonium of accumulated brutality and beastliness. 

2^0. Two theories of population. 

Two widely different theories are held as to the 
ratio that exists between the increase of population 



O VER-POPULA TION. 305 

and the increase of wealth in the world at large, 
and on a smaller scale in every civilized community. 

The one is known as the Malthusian theory, which 
teaches that after a certain stage, already reached in 
many countries, distributive wealth is a constantly 
decreasing quantity. 

The other is advocated by Mr. Carey and others 
in this country, and holds that the distributive 
wealth is a constantly increasing quantity in all civ- 
ilized countries. 

Facts in great abundance can be cited — in fact, 
they have been cited — in proof of both theories. 
But, as I have said in the Introduction, facts never 
prove anything without an assumption, which may, 
of course, be false, — -a mere petitio principii, — and 
thus vitiate the whole argument. 

2^1, Reasons for Maltkus's theory. 

The Malthusian theory of population is usually 
held with the Ricardo theory of rent, and the two 
together .teach — 

(i) That population tends to increase in a geo- 
metrical ratio, or by the constant multiplication of 
the number of people of each age by a certain rate 
of increase. 

(2) That wealth increases, at best, only in an 
arithmetical proportion, and this for two reasons : 
20 



3o6 POLITICAL ECONOMY. 

(a) People, as he holds, always begin to cultivate 
the best and most productive soils first ; so that at 
each successive stage and with each succeeding 
generation in a nation's history, they will be taking 
into culture lands of inferior productive value, and 
hence the average productiveness of the soil actually 
under cultivation will be a decreasing one. 

(b) That the cultivation of the soil tends to wear 
it out, so that the same soil becomes less and less, 
productive as time rolls on ; and that, in conse- 
quence, in each succeeding age the land will produce 
less than in any preceding age. 

Taking these two conditions together, we may 
represent the distributive wealth of successive ages 
by the quotient of the corresponding terms in two 
series, the one geometrical, and the other arithmet- 
ical, the terms in the geometrical series being always 
a divisor; thus, 

1234567 
I 2 4 8 16 32 64 

2^2. Reasons for Carey's theory. 

Mr. Carey, on the other hand, holds, 
(i) That cultivation always begins with the 
poorer if not the poorest lands, on hillsides and hill- 
tops, where the forests are light and the soil thin ; 
while the most productive soils are on the lowlands 



OVER-POPULATION. 307 

' — too heavily timbered and too wet for the cultiva- 
tion of the first settlers — and hence, the average 
productiveness is an increasing one, in consequence 
of the fact that the portion taken into cultivation by 
each succeeding generation is better than that of the 
preceding. 

(2) That culivation itself, so far from wearing out 
the soil, tends, if properly conducted, to deepen 
and enrich it; so that instead of bearing less, it 
becomes more productive with successive genera- 
tions of cultivators. 

Hence, in considering the production of wealth 
as affected or limited by land, we have three varia- 
bles, which may vary independently of each other. 

(i) The amount of land actually under cultiva- 
tion. 

This will, of course, be greater when the inhab- 
itants of the earth number millions, than it can be 
when they are but a few hundred. 

(2) The average entire productiveness of the soil 
actually under cultivation. 

Ricardo holds, as we have seen, that it would be 
less when the earth, or any large portion of it, is 
pretty well occupied, than when there are but a few 
people, and that, therefore, the average native pro- 
ductiveness of the soil actually under culture de- 
creases with the increase of population ; so that a 
day's work, on the average, will produce less and 



3o8 POLITICAL ECONOMY. 

less. Carey holds the opposite view as already 
stated. 

(3) The acquired productiveness. 

Ricardo holds that the land becomes worn outy 
and so the native productiveness becomes less and 
less with each advancing generation. Carey holds, 
that with proper culture each acre may become 
more and more productive, and hence the acquired 
productiveness is an increasing one ; so that a day's 
labor will produce more and more, 

2^ J, How far satisfactory. 

There can be no doubt that Carey is right in the 
main, in the two last of these propositions. Both 
authors are agreed in regard to the first. 

It is a fact that the first settlers in any country do 
not generally begin in the lowlands, which with 
proper cultivation will produce the largest crops. 
And it is undoubtedly true, and I presume both 
Malthus and Ricardo would admit it, if they were 
now living, that cultivation need not exhaust the soil, 
but on the contrary, if we will return to it in the form 
of manure all that we take from it, or its equivalent, 
it will grow more and more productive with culti- 
vation. 

But. I cannot attribute to the premises of Mr. 
Carey the influence he claims for them in disproof 
of the Ricardo- Malthusian doctrine. 



OVER-POPULATION. 309 

(1) The quantity of land that can possibly be 
brought under . cultivation is limited by geograph- 
ical and astronomical considerations that man cannot 
change. It is manifest that the soil on which any 
great city, or in fact any village of considerable 
size, stands, could not be made to produce food 
enough to sustain the people that now live- upon it 

Suppose now under the law of increase of popu- 
lation already stated, population should become the 
world over as great to the square mile as in our cities 
and villages, or even approaching it, there could be 
no increase of the means of living equal to the 
increase of population. 

(2) The productiveness of any soil is limited. 
Nobody supposes that an acre of ground, for ex- 
ample, could be made to produce an unlimited 
quantity of wheat Hundreds and thousands of 
bushels to the acre is beyond human expectations 
— beyond possibility. 

2^4. The rate of increase of production. 

Hence, the first series of terms given above, that 
which represents the increase of productiveness of 
the soil, and constitutes the successive numerators 
in the preceding paragraph, though of the nature 
of an arithmetical series, cannot be regarded as hav- 
ing any constant rate of increase or common differ- 



510 POLITICAL ECONOMY. 

ence. At times, doubtless, the series will increase 
more rapidly than by a common difference of one,, 
and at others, by a difference less than one, until^ 
when all the land shall have been brought under 
cultivation, and the fertility of the soil shall have- 
been increased up to the highest point, to which 
skill and labor can carry it, there can be no common 
difference, no farther increase at ally whatever may be 
the state of the population, whether increasing or 
decreasing. 

And so, too, the "difference," or rate of increase 
in certain cases, may become a minus quantity, and 
give in succeeding quantities a smaller quantity 
of the products of labor with which to supply 
human wants. Doubtless such a thing, though 
possible, will be rare and most demoralizing in its 
influence^ wherever and whenever it may occur. 

2^§, The rate of increase of popidation. 

Certainly the rate of increase in human popula- 
tion is of the nature of a geometrical ratio. Two 
parents, for example, may have four children, and 
they may, each pair of them, become parents, with 
four children in each family, and so on ; and thus 
we have a geometrical series, with a ratio of two to 
indicate the rate of increase of population. 

Of course this will not be the exact number in 
all cases. But it indicates the law of the series. 



OVER-POPULA TTON. 3 1 1 

2^6. Limits to the rate of iizcrease of population. 

But to the operation of this law there are two 
limits, that the advocates of the Malthusian theory 
seem not to have taken into account ; both of them 
limiting, after a certain stage in the progress of the 
race, the rate of increase, totally irrespective of any 
change in the distributive wealth, 

(i) Human beings, like every thing else in the 
animal, and even in the vegetable world, become 
generally less productive as they rise in the scale of 
culture. We are all familiar with the fact that 
roses and others of our most highly cultivated 
flowers will produce no germinating seed ; some- 
times they have no seed at all. 

The higher ranks in any civilized society, if we 
take wealth and cultivation as the standard, seldom 
produce offspring enough to keep their numbers, as 
a class, good. Most of the great men of the world 
have had no children ; very few have had descend- 
ants in any direct line for more than three or four 
generations. 

(2) As population becomes dense large cities 
arise and increase in number, and in the number of 
their citizens. But they are great consumers of 
human life. 

I doubt if in cities with thirty thousand inhabit- 
ants, there are, on an average, more persons born 



^it POLITICAL ECONOMY. 

than die annually within their limits. In larger 
cities the number of deaths almost invariably ex- 
ceeds the number of births. In New York it is 
about three to one. For some years past there 
have been in round numbers^ births 14,000, deaths 
21,000. 

And this certainly not because there is not enough 
to live upon : not because New York State is not 
increasing in distributive wealth. 

Dense aggregations of people^ such as cities and 
armies, furnish an extended field for the operation 
of the causes tending to destroy human life. 

The barrack and the camp are great nurseries of 
vice and disease, and far more destructive to life 
than the actual battle field, while the influx of fresh 
blood into cities and towns unprotected by sanitary 
precautions affords them the only refuge from 
depopulation and decay. 

The tendency of population is to centralization. 

Great cities and large towns thus become pestif- 
erous centres, absorbing the vigor and energy of 
the country and increasing at its expense. 

The causes tending to produce disease and death 
are more fatal and prevalent among a dense than 
among a scattered population. 

In England, for example, from every class of 
diseases except two, the deaths were more numerous 
■ in the cities and larger towns than in the rural 
districts. 



OVER-POPULATION. 313 

For the diseases called zymotic, and believed to 
originate from over-crowding and a general sanitary 
condition of the people, the deaths were twice as 
numerous in the cities as in the country, while for 
the whole number of diseases the deaths were forty 
per cent, more among the civic than among the 
rural population. 

Of the whole ninety-five causes of death specified 
in the reports of the Registrar- General, only fourteen 
— and these among the least destructive — were more 
prevalent in the country than in the cities of Eng- 
land. 

The reports of the Registrar- General give the ra- 
tio of deaths, in each of the six hundred and twenty- 
three registration districts, to the density of popula- 
tion, for twenty years, and show that the death-rate 
varies directly as the density and inversely as the 
advance of sanitary civiHzation. In the most 
crowded localities, with a population of two hundred 
and fifty to the acre, the death-rate was one in 
eighteen ; while in the country, with from twenty 
to thirty-eight acres to the individual, the deaths 
were only one in sixty-two. 

As another proof that the average life of man is 
shorter, his vitality lower, and his physical powers 
less fully and perfectly developed and less vigorously 
sustained in the city than in the country, I cite the 
fact that of the recruits enlisted for the British and 



314 POLITICAL ECONOMY. 

French armies who fail to meet the requirements of 
health, strength, constitution and stature, a much 
greater proportion of them are from the cities than 
from the rural districts. 

^57. Statistics bearing on this point. 

I find the following statistics in the Philosophical 
Transactions, Vol. VII, pp. 10 and 214 of the 
Abridgment relating to the cities on the continent 
of Europe, chiefly German ; I could doubtless find 
more recent facts on the same subject, but these are 
sufficient, I think, to justify me in the inference I 
have made. 

CITIES. BIRTHS. DEATHS PER YEAR. 



Breslau, 


1295 


1482 




Vienna, 


4104 


6490 (A. 


D. 1720) 


Dresden, 


1396 


1850 




Leipsic, 


760 


1300 (A. 


D. 1719) 


Ratisbon, 


250 


220 




Nuremburg, 


1084 


1063 




Copenhagen, 


2630 


2247 




Dantzic, 


1833 


1435 




Weimar, 


100 


183 




Berlin, 


2701 


2499 




Lobau, 


226 


171 




Freyburg, 


262 


321 




Erfurt, 


666 


448 




Augsburg, 19 y. 


,347,481 


394,837 




Totals, 


370,030 


415,806 





OVER-POPULATION. 315 

or a rate of births to deaths nearly six to seven. It 
will also be noticed that, with important exceptions, 
the excess of births to deaths is in the smaller 
towns. 

Doubtless improvements in sanitary regulations 
will change the ratios for the better. But still I 
think that the general principle holds good, that 
there is a tendency to increase the death-rate above 
the birth-rate in large towns, with densely crowded 
population, scarcity of food, insufficient cleanHness, 
foul air, and still fouler habits and morals. 

2^8. Difference between civilized and savage society • 
in this respect. 

We have, then, two causes that influence the rate 
of increase of population, bearing directly upon the 
ratio given on a preceding page, namely : 

(i) With higher culture, the births among the 
better class will be fewer, and 

(2) In the lower classes the deaths will be greater 
in proportion to numbers. 

Now there can be no doubt that the rate of in- 
crease is of the nature of a geometrical ratio, as 
expressed by the successive denominators given 
above ; and yet, the ratio itself is not constant It 
may be true for several generations in some states 
of society and some conditions of human life. But 



3i6 POLITICAL ECONOMY. 

in others it will, for the two causes just named, be 
less, so that it may become unity, with, of course, a 
population stationary. And with war, pestilence 
and famine, and epidemic diseases, it may become a 
fraction ; in which case the series is a decreasing 
one, and we have a state of things most unfortunate 
for human morals as well as for the physical well- 
being. 

And it is worthy of special note, that at present 
and in this stage of human history both causes co- 
operate infertility of the highly cultivated and fre- 
quent deaths among the vicious, debased, and pov- 
erty-stricken population of our large towns. In a 
savage state, only the latter cause would operate to 
any considerable extent. But as we pass to a higher 
civilization, and approach the last stages of human 
existence, the opportunity for this cause will, as I 
think, disappear and the other come into fuller oper- 
ation, and control the conditions of society and the 
destinies of man. And thus we shall have a state 
in which there will be and can be no over-popula- 
tion, and that too without death-rates increased by 
starvation, or by any other cause or influence than 
such as men and women choose to impose on them- 
selves, irrespective of any question as to the ways 
and means of raising and providing for the children 
that may happen to be born to them. 



OVER-POPULATION. 317 

2^6. Inference from the foregoing. 

Taking then the two elements, (i) rate of increase 
of production, and (2) rate of increase of population, 
into consideration together, and considering the con- 
trolling causes that influence the nature of the rates, 
we find that there must come a time when the pro- 
ductions of the soil and the means of human sub- 
sistence shall have reached its highest limit, and can 
go no further; and a time, also, when the ratio of 
increase to the population will be reduced to unity ; 
and then we shall have no further increase in the 
total or aggregate population of the earth. 

From the nature of the case, the two conditions, 
though to some extent independent of each other, 
are not, nevertheless, so independent but that they 
must occur at about the same time. 

260. Reference to the present condition of civilized 

stations. 

Another general fact will be useful in confirming 
our position. 

In all the nations of Europe and in America, too, 
for that matter, there has been, indeed within the 
last three hundred years, a great increase in the 
density of the population. But there can be no 
doubt that there has been a greater increase in both 



3i8 POLITICAL ECONOMY. 

the aggregate and the distributive wealth, also, from 
which it is evident that the aggregate wealth has 
increased faster than the population. 

This might not be inferred, or admitted even, if 
we were to look only at the conditions of the poorer 
classes alone. But if we look into the mansions of 
the rich and consider their style of living, the amount 
of the products of labor they consume in the family, 
their houses and their tables, their wardrobes and 
their stables, and compare these items of expense 
with what their ancestors, some three or four hun- 
dred years ago, were accustomed to, I think we 
shall find reason to accept the statement that both 
the aggregate and distributive wealth have greatly 
increased. 

261. The rate of interest indicates the rate of 
increase of wealth. 

But looking at the rate of interest and the rate of 
increase of population as independent facts, we 
deduce a conclusion that is both illustrative and 
confirmatory of the general doctrine just an- 
nounced. 

The rate of interest indicates the rate of increase 
in capital : that is, it indicates the rate of increase in 
distributive wealth, that would result if all the wealth 
were used as capital — the rate of increase therefore, 
that is always possible for a nation. 



OVER-POPULATION. 319 

Thus, suppose a man with five thousand dollars 
capital and employing two men, can make a certain 
net amount of profit in a year. Now suppose that 
with one thousand dollars more of capital he could 
make one hundred dollars more after paying for 
whatever of additional cost there may be in carry- 
ing on the business, arising from this increase in his 
capital. It is manifest that he will hire that one 
thousand dollars, if he can get it, for a rate of inter- 
est that is less than ten per cent., or one hundred 
dollars on a thousand ; that is, he will pay nearly all 
he can make more, in consequence of the use of the 
borrowed money, for the use of that money. But 
of course he can make that amount only because a 
thousand dollars capital can be made to produce 
that additional amount of value. Hence the rate of 
interest is an indication of the increment in distrib- 
utive wealth, or the addition that is made to it year 
by year. If this be great, interest will be high ; if 
small, the rate of interest will be low. 

262, This coinpared with the rate of increase 
of population. 

If now we turn to some of the leading nations of 
the earth, we find that the rate of increase in popu- 
lation per year, is about as follows ; 



320 POLITICAL ECONOMY. 

United States, - - - 3.00 per cent. 
England, - - - - 1.80 " 
Austria, - - - - 1.30 " 
Prussia, - - - - 1.40 " 
Netherlands, - - - 1.30 " 
Naples, - - - - .83 '' 

France, - - - - .60 " 
The list might be extended so as to include all 
the nations of the civilized world. But that is un- 
necessary. 

Now the rate of increase of population is not 
probably in any one of these cases, or in any other 
that can be cited, more than one-half so great as the 
rate of interest, even when divested of all increments 
on account of risk, uncertainty of payment, etc., 
In the United States, at the time referred to above, 
the average rate of interest was more than five per 
cent. In England it was certainly not less than three 
per cent. In the Netherlands it was more than two 
per cent, and so for the rest. In all cases the rate 
of interest is more than that of increase of popula- 
tion, showing conclusively that up to this time 
wealth is increasing, even in our richest and most 
densely populated countries, much faster than the 
population among whom it should be distributed. 
26 J. Inference from the facts. 
It must be manifest, therefore, that any increase 
to the population must give an increase to the rate 



O VER-POPULA TION. 3 2 1 

at which wealth will be increased until we have the 
operation of this arrested by one or the other of the 
following facts. 

(i) No more land to be taken into cultivation. 

(2) No possibility of increasing the productive- 
ness of that which is under cultivation, 

(3) No new article, which having been hitherto 
useless, may be utilized 

(4) No discovery of a new use for an article, 
which has been already in use, that may increase its 
intrinsic value or power of satisfying human wants. 

(5) No possibility of greater economy in con- 
sumption, so that what we use will be made *'to go 

further" as the expression is. 

(6) No further reduction of the ''waste" which is 

in some measure inseparable from all forms and con- 
ditions of human life. 

Short of these limits, the aggregate wealth may 
increase with the increase of population, and for 
reasons already given, it must increase more rapidly 
than population up to a point very near to those 
limits. 

It must be understood moreover, that the increase 
of wealth will not be arrested by the reaching of 
any one, or in fact, any part of them alone ; they 
must all be reached before there will be a stop to 
the increase of the aggregate wealth of the world. 



21 



322 POLITICAL ECONOMY. 

26^.. A turning point in the law. 

But it is certainly possible, and in fact highly 
probable, that lon^ before this time the limit to the 
increase of the distributive wealth will have been 
reached, that is, the point at which no more can be 
produced during the year by the labor of mankind 
than will be consumed by them during a similar 
period. 

The history of the world furnishes examples of 
decreasing wealth and population, as well as of the 
reverse. The plains of Mesopotamia, ''th^ marshes"' 
as they are called, about Rome, are examples. In 
all these cases the decrease of population caused an 
abandonment of the most fertile land, simply be- 
cause they required more labor for their cultivation 
than the decreasing population could give. Not- 
withstanding these lands yielded when properly 
cultivated more per cent, and more for each day's 
work bestowed on them, they were the first to be 
abandoned^ as they were the last to be brought inta 
cultivation. 

With a decrease in wealth and population, comes 
also an abandonment of the precautions taken to 
retain the richest or marsh lands for agricultural 
purposes. Noxious malaria is thus permitted to in- 
vade the salubrious districts ; it invariably advances 
upon the decay, and retreats before the growth 



HOPES AND PROSPECTS. 323 

of civilization. The Pontine marshes have sickened 
the district of Volci and the Eternal City for many 
an age, the noxious malaria of the Maremma has 
been long familiar, and to that agency alone do the 
people attribute their inability to overcome the 
effects of the pestilential invasions of the sixteenth 
and seventeenth centuries. 

Hence it seems manifest that from the first settle- 
ment of a country, or the first step in the process 
of emerging from savagery, wealth will increase 
more rapidly than population, and thus give a con- 
stantly increasing distributive wealth. 

But there is- a point, as we have seen, at which 
this ratio of the two increments must cease, I have 
indicated that point as the concurrence of five con- 
tingencies, but practically they will all come to one, 
namely: the time when there is no more uncul- 
tivated land to be brought under culture as a means 
of production. 

26^.. Signs of the approach to it. 

Of the approach of this period there will be 
several signs, and beyond it there will be certain 
consequences which it may be well theoretically to 
consider. 

The first sign is this, interest on money, or what 
is the same thing, rent for capital will be reduced 
to a minimum, and most likely to nothing. 



) 



324 POLITICAL ECONOMY. 

I refer here only to the facts proved to be the re- 
sult of an inevitable law, that interest decreases as. 
capital, or distributive wealth increases in quantity 
or amount. 

And it may be well to remark that capital is- 
always distributive wealth, and distributive wealth 
is capital ; this results from the fact that every man 
u^es up his annual income in soime way. Even if 
he invests it in bonds or stocks,, it becomes capital 
for the support of labor. Railroad stock, for ex- 
ample, is but the representative receipt for money 
paid towards the labor of building and equipping 
the road, or of obtaining the right of way, etc., as 
preliminary conditions to its construction. National 
stocks form no exception. They represent rioWy, 
largely, work that was done in the late war as a 
means of preservation to the nation itself, and thus 
the money invested in them is, or has been devoted 
to the support of labor. 

But to return to the fact It is obvious, at first 
sight, that the richer the country, the lower the rate 
of interest. In all new countries it is very high, 
twelve and fifteen per cent. In New England it is 
six per cent. ; in New York seven ; in England four 
or below ; in Holland and Belgium still lower. 

266. The effect of reaching it. 

Under this law the time must come when interest 



HOPES AND PROSPECTS. 325 

and rents will be so low that nobody can live on 
them alone, without productive labor and exertion 
■of his own. For, before we reach that limit, all such 
institutions as primogeniture, entail, jointure, etc., 
by which large estates are locked up and kept 
together, in and for the use of a single privileged 
family, as in England, must have been swept away 
by other influences than those that mere Political 
Economy takes note o£ 

Hence at and before this period in the world's 
history, accumulated wealth as a means of support, 
must be drawn upon like the oleagenous matter in 
the system in the animal economy when disease has 
impaired the processes of digestion and nutrition. 

All will of necessity become laborers, and all will 
be gradually approaching that condition, in which 
all will be nearly equal ; for all will be reduced, each 
one to that which he can do, even with his own 
hands and by his own skill ; and the utmost produc- 
tion of all labor combined can do no more than to 
produce what is needed from year to year for con- 
sumption, 

26 J. Changes m social and private habits. 

First in the order, all mere waste will be stopped ; 
we must give up tobacco and whiskey ; and the lux- 
uries, as they are called, will be dispensed with. 



326 POLITICAL ECONOMY. 

And I have no doubt we shall have an increase of 
health and longevity, as well as a great improve- 
ment in public and private morals, with this change. 

And doubtless some of those things which are 
called " conveniences/' will be the next to go, and 
with them, or with what will then be considered as 
belonging to and constituting this class — ^there will 
probably be no loss to the cause of health and good 
morals. 

And at this period, I have no doubt that in obe- 
dience to laws I have already stated, there will be 
such a modification of the rate of increase of popu- 
lation, that there will be little if any farther increase 
at all ; and the births, without any restraint imposed 
by the state or other agency than the voluntary 
choice of the people themselves, will not be more 
numerous than the deaths that will occur without 
violence and in the ordinary course of nature. 

268. Fears of a noblesse of wealth. 

But it has been predicted, in view of the vast 
power which wealth, as acquired capital gives to the 
man who possesses it, that there is a prospect that 
those who have it will acquire by the natural oper- 
ation of the laws of Political Economy, at a con- 
stantly increasing rate, until nearly all the wealth is 
owned by these business men, and managed by 



HOPES AND PROSPECTS, 327 

them so that we shall come to have a noblesse of 
wealth, in the near future as we have had a noblesse 
of political power in the past ages of mankind. 
Such persons argue that as capital in the shape of 
tools, machinery, etc, gives to the laborer increased 
capacity to produce commodities, there is a tendency 
towards greater diversity in the amount of wealth 
that will be possessed by the individual, arising from 
the fact, that he that has the most capital to work with, 
can make money the fastest. 

Now this is to some extent true. The introduc- 
tion of machinery, with a consequent division of la- 
bor in any kind of manufacturing, will drive all the 
small manufacturers, who labor without machinery, 
out of business, and close their shops. 

The same is true to some extent on our farms : 
the man with a large farm can afford to buy and use 
expensive labor-saving implements, which his poorer 
neighbor, with but a few acres, cannot afford to buy. 
Hence, in all our countries that have been settled 
fifty years or more, and that are pretty thickly 
settled, the owners of small farms are selling out, 
and their lands are being absorbed into larger 
estates. And, in the same way, small manufactories 
are being merged into larger ones. 

26g, Reasons why there can be no7ie. 

But there is a limit to this increasing disparity in 
the distribution of wealth. 



328 POLITICAL ECONOMY. 

There is always a limit to the amount of capital 
which any one man can use with increasing rate of 
profit. 

It will be understood that I am speaking only of 
the legitimate means of acquiring wealth — agricult- 
ure, manufactures and trade ; what I have said may 
not be true of speculation. In that way of getting 
wealth, the larger one's capital the greater may be 
the extent to which it will enable him to make 
combinations, buy up stocks, force ''corners," and 
the various other operations known to the craft. 
But this is exceptional and abnormal. Even now 
it meets the disapprobation of the moral sense of 
mankind, and there can be no doubt, I think, that 
means will be found in the progress of civilization 
to slough off this diseased tissue and get rid of this 
perpetual ulcer on the body politic. 

This kind of ''business" is greatest and most 
sought for, when the rate of interest is high, the 
country unsettled, and prices and values are fluctu- 
ating. It is merely a temptation to men who are 
not disposed to do anything to increase the actual 
wealth of the community, to put in their hands and 
clutch all they can get hold of, of the products of 
other men's labor : they buy and sell for none of 
the legitimate purposes of trade ; they do not wait 
for the natural rise and fall in prices, though ready 
to take advantage of them ; they buy to force up 



HOPES AND PROSPECTS. 



329 



the market, or they sell to **bear" it down ; and are 
really but little better entitled to the gratitude of 
mankind than the incendiary who sets fire to a town 
only for the chance of plunder, which the conflagra- 
tion, that his criminal act has produced, affords 
him. 

2 JO. Unity of executive necessary. 

Any kind of business that deserves the name of 
business, or is in any way useful to mankind, re- 
quires, in order to the highest rate of profit, to be 
carried on as a unity, and must be supervised and 
managed by some one mind. 

Now when in any case the business of any es- 
tablishment or firm gets to be so large, that no one 
man can give to it, and to all its parts the maximum 
of skill and attention, some man with the same 
amount of skill and industry, and less capital or bus- 
ness to manage, will make money faster than he does, 
that is at a faster rate, though perhaps not so much 
in gross amount per year. 

Again, much will depend upon locality, especially 
in matters of exchange. A merchant in New 
York needs more capital than he could well manage 
in a country village. This is notably true of banks. 
In the country the capital seldom goes beyond one 
or two hundred thousand dollars ; in the city it 



330 POLITICAL ECONOMY. 

sometimes reaches fifteen or twenty millions. It 
takes but little if any more time and care to make 
entries and look after accounts that amount to 
thousands of dollars than those that count by tens 
or hundreds. 

2yi. Effects of increasing intelligence. 

But a most important limitation is to be found in 
the intelligence of the people themselves. In a 
country of savages alone, ignorant and unskilled, 
there is no doubt that one man could produce from 
any large tract of land more as owner and control- 
ling mind than they would produce if left to them- 
selves, or could produce if they were each one of 
them to direct his own efforts in his lack of skill. 

But convert these mere ignorant operatives into 
intelligent farmers, each as capable of managing a 
farm as the one supposed capitalist, and the tract of 
land would require to be subdivided into much 
smaller farms, in order that we might get the bene- 
fits of each man's skill or realize the greatest rate 
of profit on the capital employed in its cultivation. 

We find, then, that in the increase of the number 
of educated laborers there is a limit to the tendency 
to accumulate the wealth of a nation in the hands 
of a few, and that a constantly decreasing portion 
of the population, and hence a corresponding ten- 



HOPES AND PROSPECTS. 331 

dency towards an equality in the distributive wealth. 
But the great fact is, that with any increase in 
the intelligence of the people there will be a greater 
utiHzation of the forces of nature; they will be 
compelled to do more and more of our work for us. 
Human labor will be a constantly decreasing portion 
of that which makes up the intrinsic value of the 
articles we have occasion to use, and the exchange- 
able value we have to pay for in purchasing them. 
Hence they will be cheaper and evermore becoming 
cheaper, and thus more and more within the reach 
of the mere laborer, increasing not only his comfort 
and means of enjoyment, but also his power to 
accumulate and become a capitalist, and thus reap 
the profits due to the capital employed, as well as 
receive the wages of the labor performed. Hence 
to every intelligent and competent man the way is 
opened to the possession and ownership of as much 
capital as he can use with a maximum rate of profit, 
or as is necessary to his happiness and welfare. 

2y2. Fears of a violent assumption of wealth by 

the few. 

Again, there are those who predict that as we ap- 
proach the time when the earth is so full that there 
is a prospect of want, the powerful and cunning few 
will get the wealth into their hands by some violent 



332 POLITICAL ECONOMY. 

means, assume all political power and control, and 
devolve all the evils of the want and destitution 
upon the laborers, so that they will be only the 
worse off, the more numerous they are. 

There is much in the present condition of the 
wealthiest, and most densely populated nations of 
the old world, as well as in the history of the past, 
to give plausibility, if not probability, to this view. 
But I have been speaking of the time when the 
** whole world" shall have become so full, as to bring 
about these results everywhere, rather than of the 
case as it may occur in any particular nation. 

In this age, emigration has come in to play a most 
important part. It not only carries off the surplus 
population ; but the surplus of capital also goes 
abroad, seeking investment where it can find offers 
of greater returns, than can be expected at home. 
For these two reasons, the exportation of labor, and 
the transfer of capital, we do not see in any of the 
nations of Europe, all the legitimate effects of the 
growing density of their population. Rents are 
not so low, and the condition of the laborers is not 
so bad, as it would have been, had not this means 
of relief been extensively in operation. 

2y^, The poverty of the many no fault of nature. 

But why, one very naturally asks, will not all 



HOPES AND PROSPECTS. 333 

these evils come upon us in their most aggravated 
and most unmitigated forms when the earth itself 
gets so full that there will be no place for emigration 
to transfer, either wealth seeking new investments, 
or laborers in search of employment and the means 
of sustenance ? To this question I answer that the 
wealth of the few or poverty of the many is no 
fault of nature, or of the Author of nature. It is 
rather the fdult of man. No nation of any con- 
siderable size has ever yet had so many people that 
with equal laws, fair distribution, and proper frugal- 
ity, it could not abundantly support them all. And 
for reasons already assigned, I think we may safely 
affirm that no such phenomenon will ever occur. 

If now we look into the nations where there has 
been the greatest complaint of ''over-population," 
we shall find causes at work, quite other than the 
laws of nature, that are sufficient to account for 
what has occurred. We not only find a large mon- 
eyed class, but we find them in possession of the 
political power as well. Selfishness there does not 
enable them to grasp all they want, notwithstanding 
the poverty, the destitution, and the starvation of 
the masses. But this cannot always continue : 
there is one country now, where it cannot possibly 
occur. Give us a country in which the people are 
comparatively intelligent, and have been accus- 
tomed to the possession and exercise of political 



334 POLITICAL ECONOMY. 

rights; to choose their own officers, and through 
them to make and execute their own laws ; and any 
approach to the Hmit where population overtakes 
the power of the earth to support it, will show itself 
in the gradual approach towards an equality of 
wealth ; leaving behind an inequality only as great 
as that which exists in the productive value of each 
man's ability to create wealth. 

2y^. Economic effects of universal stffrage. 

I look upon the formation of the American Re- 
public, now that time and the experience of a century 
have proved it a success, as one of the greatest 
epochs in history. I know of only one that I would 
reckon its equal, and that is the introduction of 
Christianity. The political equality which was here 
established, was the great and characteristic feature 
of the new era for humanity. Here the people are 
voters, and the people are laborers. Hence the 
laborers do the voting, they get accustomed to re- 
spect and to exercise their rights, they will see that 
their rights are guarded and enforced ; and among 
them, as the most sacred of all, the right of the la- 
borer to his hire, and the right of every man to the 
wealth he lawfully acquires. 

It is evident, I think, from the condition of things 
at present, that this relation of the people, one to 



HOPES AND PROSPECTS. 335 

another, is approaching in all the nations of the old 
world. Privileged classes must go to the unrelent- 
ing receptacle of the past, and long before the earth 
will have become so full that she can sustain no 
more, and the ratio of the increase of population 
will have become unity, universal suffrage will have 
become universal in fact, as well as in name. And 
then no grasping few, however selfish and well dis- 
posed to do so, can secure and hold to themselves 
an abundance, while the many are starving or wait- 
ing in undesired idleness, kept from creating as well 
as earning for themselves a living. There will be 
no class trained to servility, and accustomed to the 
abnegation of their rights, to submit to such tyranny. 
The sacred awe for superiors will have passed away, 
or cease to exist in any such sense as to allow them 
to monopolize the means of subsistence and enjoy- 
ment. 

Hence the power to acquire and hold the wealth 
by the few will have passed away ; they cannot do 
it by physical force — they will be too few in num- 
bers for that. They cannot do it by moral means, 
or rather the immoral means of superstitious vene- 
ration for superiority of rank ; for the people are 
too much enlightened and too irreverent for that. 
They cannot do it by any voluntary consent of the 
people ; for, however it may happen that here and 
there one may consent to starve that others dearer 



336 POLITICAL ECONOMY. 

than himself may eat and live, this can never be the 
case with the masses ; and the masses will see no 
occasion for their sacrificing themselves for others 
who, so far as they can or will see, are no better 
than themselves. 

2y^. Increasing regard for the principles of right. 

And I have no doubt that as the period we are 
contemplating approaches, there will be an increas- 
ing regard for the moral principles, which now and 
ever lie at the foundation of all society, of all 
government, and of all law. I have already inti- 
mated my belief that it was man's entering upon 
that stage towards civilization, where labor becomes 
a necessity, which, if it did not originate, did cer- 
tainly give a most important impulse to the develop- 
ment of man's moral nature. From that time to 
this, there has been, indeed, even in the midst of 
civilization — to say nothing of what has occurred 
among savage and barbarous nations outside of it — 
two diverse and opposite tendencies of the influences 
at work, according, as I think, to th^ diversity in the 
natural constitutions of those upon whom the in- 
fluences have been operating. But the tendency 
has been, on the whole, upwards and for the better. 
And that must be so hereafter. The means of liv- 
ing becoming scarce in proportion to the population 



HOPES AND PROSPECTS. 337 

that want them, and there being no privileged classes 
who may, and no selfish class who can, take to 
themselves the lion's share, each one of the better 
disposed will become more jealous of the rights of 
property, especially the rights of the laborer to his 
share, as contrasted with that of the capitalist 
Hence, clearer notions of right and the passing 
away of many of the principles of ''the law mer- 
chant" which now pass current, and are accepted 
by everybody, must ensue. 

2y6, Improvement in the adjninistration of justice. 

Nor will it be merely a change in the notions and 
views of the rights of property; there can hardly 
fail to be greater certainty of detection, and greater 
severity of punishment for any unlawful means of 
getting property. And some of the measures that 
are now allowed or winked at, will then be regarded 
as unjust and consequently made unlawful. 

But at present, John Jacob Astor may be worth 
his forty or fifty millions of dollars, and be honored 
and respected by every body, and as completely 
protected by the laws of the state and all the force 
of the general government, if need be, as the poor 
man in the enjoyment of his daily wages. Perhaps 
a few lazy, vicious, or improvident spendthrifts may 
curse him for their poverty. A few unfortunate 
22 



S3S POLITICAL ECONOMY. 

widows and invalids, who are poor and destitute 
from no cause of their own, may, with good reason 
perhaps, feel that he ought to be a little more liberal 
of his abundance in supply of their necessities. 
But the great mass of the people regard him with 
admiration and envy rather; everybody is glad 
there are such men. He is an example that shows 
what others may become. His very existence- 
shows that a man may be worth his millions and 
nobody the worse for it^ but rather the better. 
It shows that such men may not only exist, but that 
they may each of them be regarded as a public 
blessing, a philanthropist, a benefactor of his race. 
And so doubtless, such men are, in the present stage 
of the world's history. But let the time come when 
all that the combined industry of the world can do^ 
is to produce as much as the inhabitants of the 
world will need to meet their annual consumption^ 
and the state of things will be greatly changed. 
Not all the armies and navies in the world could 
protect a man in the ownership of so much wealth,, 
for there could nobody be found that could be com- 
pelled or hired to serve in an army or a navy that 
is to be used for such a purpose. 

So long as there does not appear to be any Hmit 
to the wealth that may be had, so that one man, by 
getting rich ever so fast, does not seem to be any 
hindrance to others getting rich as fast as they please. 



HOPES AND PROSPECTS. 33-9 

but is rather an example and an encouragement to 
them, they are not likely to look very carefully at the 
means by which he acquires his property. They 
care but little for that so long as there are no violent 
outrages upon the property of others, as larceny, etc. 
But when the time comes that everybody sees that 
A by getting rich very fast, is in consequence of the 
limitation of the amount of wealth, by just so much 
a hindrance and an obstacle in the way of B and C 
and all their neighbors and fellow countrymen, to 
the end of the alphabet, getting rich at all, or even 
getting a living, they will become exceedingly jeal- 
ous and watchful, and see that by no means, and 
under no pretence of law or right, shall anybody get 
anything more than a fair compensation for the 
work he actually performs in some department of 
useful industry. 

Long before that time arrives however, men will 
become jealous of the means by which large fortunes 
are gained Stricter notions oi honesty and more 
vigorous means of enforcing them will prevail, with 
great benefit to the public, as well as the private 
morals of mankind. And thus while there will 
doubtless be individual instances of persons or of 
small neighborhoods in which the influences that 
tend to advance civilization, appear to exert a de- 
moralizing effect ; making men and women worse; 
proving itself, as in fact, something better than even 



340 POLITICAL ECONOMY. 

civilization has been declared to be — "a savour of 
death unto death" unto some; yet, on the whole, 
the increasing diversity of the population must have 
for the race at large, a tendency upwards, towards a 
higher moral as well as a higher intellectual level ; 
the very "struggle for life and the survival of the 
fittest," will work in this direction,, and may be re- 
garded as good for this result. When starvation is 
staring men in the face, they will not be so indifferent 
as now, either to the crimes that take from them 
the means of living, or to the virtues that multiply 
that means and tend to secure its more equal distri- 
bution. 

2JJ. Approach toivards social eqziality. 

And I think, too, that this equality of pecuniary 
condition, or rather, the near approach to it — for 
equality is a limit which it can never reach — will 
tend to improve men and society, in other ways than 
the one I have more especially spoken of It will, 
I think, make men all alike in one respect. Even if 
they are not equal, they will all be obliged to work 
and earn a living. Hence, one of the greatest causes 
of the rivalries and jealousies, that have hitherto 
done so much to harden the hearts, and embitter the 
lives of mankind, will be done away, and replaced 
as we think, by a sympathy and fellow-feeling, that 



HOPES AND PROSPECTS. 341 

5s the parent and fruitful source of most of the do- 
oiestic and social virtues, and without which, they 
cannot exist "The love of money" is the root of 
•evil only when it becomes the love of that portion, 
or amount of money, that may minister to vice, or 
enable one to lift himself above the common wants, 
and the common sympathies of his fellow-men, into 
that aristocratic and self-indulgent isolation, where 
some measure of indifference becomes indispensable 
to the maintenance of the "position," in which their 
money has placed them. 

2 J 8. No over-population possible. 

Hence, instead of expecting any "over-popula- 
tion," in the sense in which the words are ordinarily 
used by Political Economists, I regard the thing as 
impossible. On the contrary, I look upon the in- 
creasing density of population in the world, as one 
of the indispensable conditions of an advancing 
civilization, and as one of the most efficient means 
towards a greater freedom and equality, a higher 
morality, and a more enlightened humanity, than 
the world has ever yet seen. 

But I expect nothing, however, from Political 
Economy, without Christianity. I believe in "origi- 
nal sin," an inherited depravity working inwardly 
to produce tendencies to evil which "remaineth even 



342 POLITICAL ECONOMY. 

in them that are regenerate," and which no mere 
education in the principles of science, no combina- 
tion or force of external circumstances and condi- 
tions, can wholly eradicate ; and certainly this will 
always produce evil men and evil deeds, unless, in- 
deed, in some far off future, and some widely differ- 
ent circumstances of our race, the cleansing influ- 
ences of the in- working Holy Spirit of God shall 
effect a renovation in the race at large, like that 
which has actually been wrought in rare instances 
in men from the days when first the Holy Ghost 
was poured on the believing few on that early Pen- 
tecost in the first century. 

But we shall have, as I believe, in the future, con- 
straint and pressure of outward circumstances con- 
spiring with inward conditions and the influences of 
the Holy Spirit acting through the doctrines and 
institutions of Christianity, to bring in an ideal state 
of humanity, a golden age of perfected manhood. 
Then there will be none, as I think, so rich that 
they will not need to work, and none who will work, 
so poor that they will need be ignorant, vicious, or 
vile. 



APPENDIX. 



An Essay on '•'-the Relations of Labor and Capital from a 
Christian point of View" — -Read before the First Amer- 
ican Church Congress, New York, October 7, 1874, by 
the Rev. W. D, Wilson, D. £>., LL, £>., of the Cornell 
University. 

£ Reprinted from the Proceedings.] 

The relation of labor to capital is one of the great 
problems of the age — of all ages. In the lowest stages 
of human society, capital does not exist The labor, 
such as it is, is performed by each one, man and woman 
alike, for himself or for herself. But soon, at a stage 
above, this ceases. The strongest party shirk the work, 
devolving it on the women, and take to themselves the 
more lordly occupations of war and hunting. At the 
next stage we find the institution of slavery, and a ser- 
vile class, without rights, without so much as the owner- 
ship of themselves, doomed to do the work, while the 
masters live at ease, and enjoy themselves on the pro- 
ceeds of the labor. 

But as society advances, slavery is found to be both 
inhuman and uneconomical, and antislavery sentiment 



344 APPENDIX, 

arises. But, without this, it is much preferable in many 
respects that the master should cease to be a master and 
man -owner, and become only the capitaHst, dealing with 
those who do the work,: not as slaves, but rather as 
equals, laborers employed by contract and consent. And 
we have now society divided into capitalists and laborers 
— both free, both equal before the law — but very une- 
qual in respect to culture, social position, and the means- 
and opportunities for enjoyment. And even this state 
of society, which is usually regarded as civilization, as 
the two preceding stages have been respectively regarded 
as savagery and barbarism, tends and looks forward ta 
another in which all shall be capitalists, and all be labor- 
ers; every man shall work for the living he has, and 
every one shall own the capital he needs wherewith to do 
his work ; and culture will be universal, if not equal. 
Means and leisure for all reasonable enjoyment will be 
within the reach of all; and moral purity, a high state 
of integrity, and a benevolent regard by all persons for 
the welfare of all others will be the prevailing sentiment. 
Shall we call this the Christian stage — the millennium — 
the divine ideal fully realized ? 

Doubtless our blessed Lord saw these great problems, 
as he saw all others that have oppressed and embarrassed 
humanity. But in this, as in all other things, he gave no 
scientific or philosophic solution. He came not to teach 
a philosophy, but a religion. Not, as has been quaintly 
said, to teach us how the heavens go, but how we may 
go to heaven. Instead of solving the problem for the 
intellects of his disciples, he solved it practically for all 
those who, adhering to his method, would believe in or- 
der to know, and obey in order to understand. 



APPENDIX, 345 

There are two precepts of Christianity which seem to 
me likely to work out a solution of this problem. 

When the Forerunner of our Lord said to the soldiers 
who had inquired of him what they should do, " Be con- 
tent with your wages," he uttered a precept which, I 
think, we may take to be universal in its character, and 
applicable alike in all time for those who work for wages. 
This, then, is the first of the two precepts to which I 
have referred. 

And for the second, I turn to St. Paul, whom I take 
to have been uttering the mind of his divine Master, his 
Lord and ours, when he said, " We beseech you, breth- 
ren, that ye study to be quiet, and to do your own business, 
and to work with your own hands, as we commanded you. 
(ist Thessalonians, 4:10, 11.) There may, indeed, arise 
some doubt whether this is to be taken as a general or 
universal precept, when we consider the fact that most of 
the early Christians were poor people, belonging to the 
laboring classes, as they are called. But when we call to 
mind the many things that are said in the Bible about the 
danger of rich men trusting in their riches, and the im- 
possibility of those who do so entering into the kingdom 
of heaven, and the many warnings and the denunciations 
against oppressing the hireling in his wages, I think we 
shall be reconciled to regarding it as the inculcation of a 
universal precept of Christianity. 

Now, I am aware that here is no attempt to determine 
the amount of wages which the poor should receive or 
the rich ought to give. I use the words rich and poor as 
well as capitalist and laborer ; for in the popular sense of 
the words, and in the discussions of science on this sub- 



346 APPENDIX, 

ject, the laborers are the poor and the poor are the la- 
borers ; while for all practical purposes, the rich and the 
capitalists are one and the same class. I say, then, our 
Lord makes no attempt to determine the amount of wa- 
ges that should be given. He recognizes the fact that 
there are two classes. He doubtless knew, though he 
did not expressly admit, that the wages of the poor, or 
the laborers, as modern science prefers to call them, are 
often grossly and most unjustly inadequate. But he was 
no agitator. He was no violent revolutionist. He did 
not even state all the elements of the problem. He told, 
as was his manner of teaching, what we should do, not 
what we should say. To the poor he said, "Be content 
with your wages," and to the rich, "Work with your own 
hands." 

This, you may say, was no solution of the problem. 
And so it was not. But herein is illustrated the contrast 
between our Lord's method of dealing with the great 
problems of humanity, and that of the modern men of 
science, who look to themselves and their own vision 
rather than to God for their wisdom. Our Lord told 
men what to do; informed them that knowledge and 
wisdom — the solution of problems, nay, the comprehen- 
sion of mysteries — would come in time, as the result of 
faith working by love. It would come as a result. Mod- 
ern scientists would, on the other hand, stand and wait, 
and teach their followers to wait, until the problem is 
solved and the mystery comprehended; before they begin 
to work, before they take the first step toward doing what 
lies before them. 

And history justifies his method. I have not time to 



APPENDIX. 347 

illustrate; but all the ages from that day to this are a 
proof and illustration of the many problems in philoso- 
phy and science which have been solved in his way. All 
the fundamental principles of modern life and civilization 
have been reached by his method. The Greeks, who 
pursued the other method, speculated and philosophized, 
and did everything but believe and obey, and yet they 
solved none of these great problems. Faith and obedi- 
ence brought the solutions ; and so it will ever be. Po- 
litical economists have labored long and faithfully — 
though faithlessly — to determine how much the laborer 
ought to receive, and how much the capitalist ought to 
give. But this has hitherto been in vain, and it must be 
forever in vain if they adopt no other method than the 
one they have been accustomed to pursue. They may 
stand, and wait, and speculate forever, but no solution 
will come in their way. Meanwhile the evil thickens 
upon them ; the atmosphere is dark with the coming 
storm ; its winds howl and its thunders roar, but they cry 
in vain for some one to show them any good. Our 
Lord's solution they will not accept. One of their own 
they cannot hope to find. 

But let us preach the Gospel. To the poor say, with 
our Lord, "Be content with your wages;" work for what 
you can get, but work: go to work now; work always 
and constantly ; accept what you can get ; deserve more, 
and in the Lord's good time you will get more if you de- 
serve it. Doubtless your wages, in some cases at least, 
are not what they ought to be. But you know, as Chris- 
tians — if not, it is our pleasure and privilege to teach you 
— that what you suffer here from the injustice of others 



348 APPENDIX. 

will turn to your account hereafter. Be quiet. Whatso- 
ever your hands find to do, do it, and be content with 
your wages. God will take care of the rest." To the 
rich we should say, " Study to be quiet, to do your own 
business, and work with your own hands." The former 
precept — that addressed to the poor — has been pro- 
claimed and applauded with hurrahs and amens until the 
world is sick of hearing it. Its echo, which meets us 
everywhere, has too much the tone of self-interest and 
grasping greed to be altogether pleasing to humane ears. 
The latter — the message to the rich — I fear, is seldom 
heard anywhere in these days. The prevalent doctrine 
seems to be that, if a man is able to live without work of 
any kind, he may do so, and be none the worse Christian 
for his idleness and self-indulgence. 

In reference to the purely secular aspect of the problem, 
however, it may be well enough for us to say that while 
science has not yet determined, and never can determine 
precisely, how much of the income of the combined in- 
fluence of capital and labor should be given to the 
laborer in order that justice may be done, it does treat of, 
and has taught us one important element of the solution, 
which, however, is like the Lord's, a practical precept — a 
direction for action, and not a theoretical solution that 
gives a precise result. 

What science has done for us is to teach us that in our 
country where the laborers are all free, and are, moreover, 
the equals, both civilly and politically, with the rich, we 
are to leave the matter to free competition, under the law 
of supply and demand, and the result will work itself out. 
It will come by work and not philosophy, by doing what 



APPENDIX. 



349 



is before us rather, and not by any apiiori speculations on 
assumed premises. In other countries, it may be other- 
wise; but here the laborers are the equals of the employ- 
ers. They are duly impressed with the dignity and 
importance of that equality, and they have sufficient self- 
assertion and independence to demand all they can get. 
They can hire capital if they cannot get the wages they 
demand for their labor, and the path is open for them, as 
they well know to the greatest wealth, the highest offices, 
and the most coveted social positions. They cannot be 
oppressed here. The ballot is their defense against all 
evils that come from that source. The rate of wages can 
not long be kept below what is fair and just as between 
the laborer and capitalist, if it is now or ever has been be- 
low that point. In this way experience will work out the 
result. Science accepts our Lord's method, and says to 
both parties. Go to work with things as they are; and 
science adds something which he did not, with regard to 
the way in which the method is to work out the solution, 
and confirms the assurance he gave that it will come. 

But no solution can come in the speculative or a priori 
way. It sets the parties to work in the wrong spirit ; or 
rather it recognizes as right their aims and positions while 
there is an element that is radically wrong in them. The 
poor are seeking how much they may .demand with the 
prospect of getting it, and trying to get as much as they 
can for the work they do. And the rich are seeking to 
give as little as they can for the amount of work they 
need to have done. And the secular efforts to solve the 
problem go upon the assumption or admission that this is 
right. But if there is any one thing that the Gospel 



350 APPENDIX. 

teaches with more plainess and emphasis than another — 
a doctrine which is confirmed by all the experience of 
life and all the teachings of history — it is that in all cases 
of doubt and uncertainty, it is better to err, if err we 
must, on the side of generosity than on that of selfishness; 
on the side of self-denial rather than on that of self-in- 
dulgence. It is better, if either must be, that we suffer 
wrong than do wrong, to even the humblest and poorest 
of God's creatures. Let men see and accept this funda- 
mental truth, and they will find no difficulty in accepting 
and being satisfied with Christ's method of solving the 
question of capital and labor. I have no doubt this 
solution of the problem will be unwelcotne to the rich. 
But let us consider their case a little more in detail. 

In the first place, let us say emphatically that there is 
nothing wrong or sinful in the mere fact of one's being 
rich. Neither the laws of man nor the laws of God set 
any limits to the amount of wealth one may honestly 
possess, so far as I know or believe. If one has come 
honestly by what he has, he may be honest in the posses- 
sion of it. There may have been dishonesty in the 
acquisition of it ; there may be wrong and sin in the use 
that is made of it ; but there is not, necessarily, any wrong 
or sin in the act of ownership or possession. 

In the second place, we must define exactly what we 
mean by work or labor. Labor does not always imply 
the use of hands or feet. It is not always, nor all of it, 
occupied with the manual operations so often called work. 
Work may be of the mind as well as the body. And I 
would define work to be any occupation of mind or body 
or both, which is undertaken for the creation of value, or 



APPENDIX. 351 

for the promotion of human good. But in order to be 
work it must imply thought and direction. It imphes 
self-denial and self-control, and it must be carried to the 
point, sometimes at least, of weariness and of fatigue. 
It must sometimes bring the sweat of the brow, the weary 
heart, and the aching limbs. Nothing short of this can 
answer the meaning of the word labor, as used in oui 
discussion of the problem. It must be exertion for a 
purpose, and it should be undertaken with a conscious 
desire of promoting and advancing the welfare of others 
as well as our own. Doubtless there is much of the ex- 
ertion that is made by the rich, which they call labor — ■ 
which, at all events, fatigues and worries and exhausts 
them — that does not come under this definition. Much 
of what they do by way of taking care of what they have, 
and most of what they do by way of devising and exe- 
cuting plans for enjoying it, must, I fear, fail to be passed 
to their credit as work or labor performed in accordance 
with our Lord's requirement, as stated by St. Paul. La- 
bor, in the Christian view of it, must be exertion for the 
good of others, for something that increases the grand 
aggregate of means to supply human wants; something 
that alleviates human suffering, that educates, or helps to 
educate the ignorant ; to instruct and convert the erring 
and perverse ; something that does good to men and pro- 
motes the glory of God. Nothing less than this is the 
labor we speak of. 

But there is nothing contrary to God's law in a man's 
being rich. But there is much that is contrary to his law 
in the way in which rich men, for the most part, live. 
This may be shown in many ways. 



352 APPENDIX. 

All wealth is created by labor, and is limited in quan- 
tity. Objects in nature have, indeed, some intrinsic value 
or capacity to satisfy human wants. But most of them 
are useless as they are, and derive much of their intrinsic 
and all of their exchangeable value from human labor. 
It is labor that gives them their value and makes them 
wealth. Now, the man, whether rich or poor, who lives 
without labor, is all the while consuming the products of 
labor without doing anything to create them. No matter 
how rich he is, he is living upon other people, consuming 
what has cost them the sweat of the brow and the weari- 
ness of the heart, the product of exertions he does not 
make. Living would be easier for other men, or they 
would have something more to enjoy in life, if he would 
take hold and do a part of what needs to be done, and 
bear a share of the burdens that must be borne by some- 
body, instead of leaving them all, or as much of them as 
he can, to others. 

Again, it is an obvious fact everywhere, that not the 
sons and daughters of the wealthy are the most enter- 
prising, the most efficient for good, or the most useful 
members of society. If the community were made up 
of them alone, sad indeed would be its case. The very 
idea that prevails in their childhood's home, that they 
have enough to live upon, and that, since they have 
enough they may live without labor, enervates them. 
They are apt to be as little given to self-control as to self- 
exertion. Law, and order, and right, and duty are less 
cared for than ease and mere esthetic enjoyment. Hence, 
novels are preferred to science, fiction to fact, and every 
kind of sentimentalism takes the place of moral earnest- 



APPENDIX. 



353 



ness — ritualism takes the place of religion, and we find 
either a vague pantheistic mysticism, or a still more vague 
and senseless rationalism, according to the temperament 
of the individual, instead of that substantial faith in reali- 
ties unseen which nerves the souls of men and women 
for great deeds, for endurance, and for martyrdom. 

But again, the rich, as such, are a short-lived race. I 
believe it was the great Niebuhr that first called attention 
to this fact, and all the more recent investigatons have 
confirmed this statement. It can best, perhaps, be ex- 
pressed in some such way as the following : The rich 
families — the capitalists who can live without labor — in a 
community, consist to-day, we will say, of so many thou- 
sands. Doubtless they are, in the aggregate, more in 
number than they were fifty years ago, and they will be 
more fifty years hence than they are now. But this 
increase comes entirely from accessions from without. It 
is not a development from within. New men and new 
families rise up to join their rank and be counted in the 
number of the rich. But if we take note of those who 
are regarded as the rich people or the rich families to- 
day, it is morally certain that their descendants will be 
less numerous in the next generation than they are them- 
selves now. The succeeding generation will witness a 
still further diminution, and so on, until in a few genera- 
tions scarcely any of them will remain. Their name and 
their posterity are clean cut off from the earth. Infer- 
tility, shrinking firom the pains and the perils of child- 
birth and child-rearing, inefficiency, nervous diseases 
leading to debility of body and mind, announce the 
coming doom of family extinction. Such is the fact. 
23 



354 APPENDIX. 

Such is God's way of proclaiming in the Hfe of man, in 
the destiny of famihes, and in the history of nations, his 
law that " if any will not work, neither should he eat." 

Of course there are exceptions to this rule, but they 
are comparatively few. And I think it will be found that 
all the exceptions, and the only exceptions, are really no 
exceptions at all. They are those, who, although rich 
and powerful, do nevertheless work and labor in the 
cause of humanity. For it is not wealth but laziness that 
eats out the manhood of humanity. It is not the posses- 
sion of much riches, but the indolence and self-indulgence 
for which wealth furnishes the opportunity and the means, 
that brings into families the invincible leprosy of decay. 

If we look into the history of some of the great fami- 
lies whose lineage has lasted long and occupied a con- 
spicuous place^ in the pages of history, we shall see 
abundant reason to believe that the cares, anxieties and 
labors of their respective stations do as effectually ex- 
clude all thought of ease, idleness, or the indulgence of 
effeminate luxuries, as the stem necessities of labor and 
poverty drive these pests of humanity from the dwellings 
of the humble poor. 

Thus God in his word and in his work calls us to labor 
— to labor with the hand or with the head, either or both, 
according to the endowment he has given us. Let men, 
and women too, realize this great law, and set themselves 
to do the duty to which it points, and the problem of the 
relation of capital and labor is resolved, or rather disap- 
pears. The honest poor do not pine or complain be- 
cause they are poor. It is rather because that, while 
there is enough and to spare in the world, and within the 



APPENDIX. 355 

very sight of their eyes, they and their families have not 
the means of culture and education, of social enjoyment 
and religious worship. And they complain of the rich, 
not because they are rich, but rather because they con- 
sume their riches on their lusts, in idleness, self-indul- 
gence, and are a fraud and cheat — as they, from their 
point of view, are apt to regard them — a fraud and a 
cheat upon humanity. But let the rich recognize the 
Christian doctrine of self-denial, and the sacred obliga- 
tion to labor — an obligation binding equally, though per- 
haps for different reasons, upon all, whether rich or poor 
— and show themselves, as Christians ought, to be more 
ready to sacrifice than to indulge themselves, and live 
for the good of men and the glory of God, and envy 
and jealousies on the part of the poor will disappear. 

1 believe the greatest, most fundamental, and the most 
pernicious error of our age is the doctrine that psrsoi s, 
if they are only able to live without work, may do so. 
In my view, the materialism of scientific men, the ration- 
alism of compromisers, nay, the doctrine of the Immac- 
ulate Conception, and of the Papal infaUibility itself, 
are harmless in comparison with this great, wide-spread, 
and deeply rooted error. They may be refuted by rea- 
soning ; they are all repugnant to the instincts of the hu- 
man heart in all the hours of its most intense earnest- 
ness; but this takes from the heart all instincts, but the 
one it creates and fosters. 

I think, then, we may clearly infer and confidently 
teach mankind, that God has clearly foretold, has taught 
the way to, and in his providence, is working to usher in, 
that brighter age of humanity — that stage which, accord- 



356 APPENDIX. 

ing to our enunciation at the beginning of this essay, is 
forthcoming — when all shall be capitalists, and all shall 
be laborers ; none shall have enough to feel at liberty to 
live without labor, and no honest laborer shall be so poor 
that he shall need to be ignorant, boorish, unrefined, and 
unchristianized. Men will not, of course, be equal in 
intellect, in station, or in wealth ; but they will be equal 
in the common lot of humanity, its sin and fall, its re- 
demption and restoration, the labor that secures the one 
and the sorrows that are inseparable from the other. 
And when we all shall feel that to serve God and glorify 
the name of the Redeemer is more than ajl else, is so im- 
portant that all other distinctions and all other consider- 
ations sink in comparison into utter insignificance, the 
great problem of capital and labor will have been solved 
to the satisfaction of all parties, and not, I fear, before 
that time. 

I have written earnestly upon this subject, and I have 
used strong language. I have done it intentionally and 
designedly, for I believe that, next after the Atonement 
made on Calvary, to work, and the necessity for it — not 
works — is the most efficient means of human welfare, 
whether we regard the condition of the body in this 
world or the salvation of the soul in the next.* 

* It formed no part of the subject assigned me to consider the 
relation of the rich to the poor who cannot work. Although we 
have them always with us, and are commanded to work that we 
may have something to give them, my subject related rather to those 
who are not in a condition to need charity./^ | ^ 









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